In testimony submitted to the U.S. House of Representatives on April 23, the American Homeowners Grassroots Alliance (AHGA) urged Congress to take steps to reform the mortgage market and prevent future meltdowns. The House Financial Services Committee hearing followed a similar hearing earlier in the week by the House Joint Economic Committee.

In the earlier hearing, Columbia University Professor, and 2001 Nobel Prize recipient, Joseph Stiglitz recommended that the government break the behemoth financial firms into smaller, more transparent companies. Massachusetts Institute of Technology Professor Simon Johnson urged that our antitrust laws be overhauled to prevent the future development of financial firms that are too large, and also urged that the existing very large financial services companies be broken up. AHGA also believes that the biggest financial service organizations may well have gotten so large that they are at the point that any benefits of their economies of scale are more than offset by their bureaucratic inefficiencies, and the potential drastic impact of their failure on the U.S. and the world economy. AHGA urged further study of the two professors’ recommendations.

AHGA commended House Financial Services Committee Chairman Barney Frank, Representative Brad Miller, and Representative Mel Watt for sponsoring H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009. The legislation would create a federal mortgage originator “duty of care” that requires licensing and registration, as applicable under state or federal law, presenting consumers with appropriate mortgage loans (i.e., loans that a consumer has a reasonable ability to repay, which have a tangible benefit, and that do not have predatory characteristics), making full disclosures to consumers, and assuring that lenders comply with mortgage origination requirements. It would establish minimum professional standards for entrance into the mortgage origination profession, strong sanctions for violation of the duty of care, and independent determination of fault.

Since many real estate agents and real estate brokers have also been accomplices to the predatory lending process, “duty of care” requirements should be expanded to create a parallel minimum professional standard for entrance into the real estate services profession, strong sanctions for violation of the fiduciary duty of real estate brokers and agents, and independent determination of fault. Currently, minimum professional standards in that sector are too low, fiduciary duty to their clients is often ignored or undermined by industry rules, and regulatory capture usually characterizes the rulemaking and standards enforcement in that field.

The legislation establishes a “safe harbor” for qualified mortgages (which should include FHA, VA, rural housing and mortgages purchased by Fannie Mae and Freddie Mac). It serves the useful purpose of providing lenders reasonable guidelines they can rely on in carrying out those guidelines without fear of being second guessed. AHGA also supported additional standards and requirements designed to protect consumers, including mandating the availability of mortgages without prepayment penalties in each loan category. A lender would be allowed to offer a 30 year fixed rate mortgage with a prepayment penalty, for example, but they would also have to offer a 30 year fixed rate mortgage that had no such penalty, although the interest rate could be different.

On April 30, the U.S. Senate passed a housing bill that included a provision that will significantly improve the ability of homeowners at risk of foreclosure to refinance their homes to affordable levels. It complements the Making Home Affordable program launched by the Obama Administration two months ago.

The Making Home Affordable program subsidizes lenders willing to modify their mortgages to make them affordable. It is aimed at helping homeowners who have seen substantial adjustable mortgage payment increases and applies only to first, or primary mortgages.

The problem is that about half of those homeowners also have second mortgages or home-equity loans that are also pinching them financially. Under the new Senate bill, second mortgage and home equity lenders would also be offered subsidies to reduce the interest rates on those products down to an affordable level, as low as 1% if that is the amount necessary to make them affordable. The homeowner could also receive $250 a year loan balance reduction for five years.

Another provision in an earlier house passed housing bill would shield lenders and mortgage servicers from lawsuits from their own disgruntled stockholders or investors who believed the modification of mortgage terms was unnecessary. The investors are arguing that this “safe harbor” provision is too broad, and lenders will use it to try to shield themselves from lawsuits not directly related to appropriate mortgage modifications.

Unfortunately, also on April 30, the Senate also rejected another bill that would have helped homeowners at risk of foreclosure. The bankruptcy reform measure would have allowed bankruptcy judges to modify the terms of a homeowner’s mortgage, just as they may currently modify the debts of a small business (including their mortgage), when it is in the best interest of all parties to do so. Mortgage lender’s opposition to the bill is very short sighted, as by law the mortgage modifications imposed by the bankruptcy judge would in all cases have to be worth more to the lender than the current market value of the foreclosed home.

For some life gets simpler, for others more crowded.

The economy is affecting homeowners of all ages. Unemployment now exceeds 8% and jobs are increasingly scarce for every age group. Retirees have seen their savings cut in half in some cases, and their annual investment income drop even more. These trends are driving a return to the voluntary simplicity movement, which began in the 1960’s. An estimated 10 percent of American adults follow some aspect of simple living according to Simple Living America, a consumer group that advocates the lifestyle.

Voluntary simplicity is about determining and satisfying your real needs rather than sacrificing things that are important. Frugality is the most common aspect of voluntary simplicity, which to many also includes elements of environmentalism, social justice and spirituality. The concept involves doing away with things and habits that accumulate over time and don’t matter much, if at all. By doing away with the unnecessary you save both money and time, and saving money is a big priority for many homeowners these days.

The movement has evolved since the 1960’s when it was associated with hippies, communes, and the Whole Earth Catalogue. Today’s subscribers to the lifestyle are more likely to have been guided by a nine-step program outlined in Your Money or Your Life: Transforming Your Relationship With Money and Achieving Financial Independence, a New York Times bestseller published originally in 1992 and reprinted multiple times since then. While they learn to economize wherever possible, that doesn’t mean they forgo pleasures that are important to them just because of the cost. If international vacations are personally important, simple living advocates feel no guilt about a two month summer vacation to Europe, although they most certainly search for ways to go where they want, and do what they want, in the most economical manner.

In many cases advocates of simple living find ways of saving money on housing costs by living in smaller and/or more rural homes. That works if there are no extended family considerations, but unfortunately the same economic downturn that is driving more interest in simple living is making life less simple in other ways. Because there are fewer jobs more adult children have no choice but to move in with their parents, and more brothers and sisters are opening their homes to their siblings. Today 50% more adult children live with their parents than in the 1970s.

This pattern is in many ways a return to the intergenerational households that were common until the twentieth century. Parents, children and grandparents often lived together, especially in rural communities. Intergenerational households began to fade away in the last century as a result of economic prosperity. The Great Depression caused a temporary return to intergenerational families for many out of economic necessity. The current economy is causing a second recurrence.

Many of this year’s college graduation class are having difficulty finding jobs. They are adjusting to this new reality in several ways. In many cases the only alternative for this year’s graduates will be to move back in with mom and dad until they can find something. In some cases they will also be reuniting with older brothers or sisters who also had nowhere else to go after losing their jobs due to the recession. No longer empty nesters, parents who had been planning to downsize are also putting those plans on hold until the economy recovers and their “boomerang kids”, as sociologists call them, can find employment. The economy will no doubt require many of them to adopt simple living habits until it recovers, and many will carry those good habits with them into the future after it recovers.

Credit card company policies are threatening many consumers, and Congress is trimming their sails.

On April 30, the House of Representatives passed legislation that will protect consumers against deceptive, unfair, annoying, and anti-competitive credit card practices. The bill will increase the requirement for advance notice of interest rate increases, and notice of information and rights that consumers need to manage their credit card accounts. The bill also outlaws double-cycle billing, due-date gimmicks, and retroactive interest rate hikes. The Credit Cardholders’ Bill of Rights (H.R. 627) now moves to the House of Representatives for consideration. 

“This landmark legislation helps level the playing field between cardholders and card companies. For too long the relationship has been one-sided; but markets function best when all sides know what they're getting into -- and these deceptive practices need to be stopped. The Credit Cardholders' Bill of Rights brings more transparency to the contractual relationship and give consumers the tools they need to responsibly manage their own credit," Rep. Maloney said.

“The substantial reforms in this bill are needed now more than ever, as working Americans have increasingly turned to credit cards to help pay medical bills, buy groceries, and make ends meet in this troubled economy," Rep. Maloney added.

Specifically, the Credit Cardholders’ Bill of Rights would:

Homeowners will benefit in many ways.

Jobs follow broadband access, and the $7 billion in federal stimulus funding to bring broadband access to those that don’t have it will both help create jobs and help the environment. The rate at which jobs follow such access, and the rate at which rural residents adopt broadband varies significantly, however.

Many of the circumstances that will lead to high broadband adoption are unique to specific communities. We have learned that through our own personal experience of owning a mountain cabin in Virginia’s Shenandoah Valley, about 80 miles west of Washington DC. During the 30 years we've owned it about half of the original neighbors have been replaced by DC area settlers. At our nearby Interstate exit there is a park and ride lot for the large number of them who commute to work in DC. There is no doubt that a large share of these commuters will get broadband as soon as it is available out there, and many will also start telecommuting to DC , to the benefit of the environment, the economy, and their own mental health. Employers are increasingly supportive of telecommuting because in these tight times it can save them on real estate and many other costs as well.

The biggest challenge for those who must quickly decide where to invest the $7 billion+ in rural broadband funding, approved as part of the federal stimulus package, is that these kinds of unique local circumstances are not readily apparent in many cases. They will have to work diligently to identify such opportunities and identify potential barriers to efficient use of the funding. Local leaders in many small rural communities like ours are unaware of the imminent funding for broadband expansion, and they may not ask for broadband grants. Many rural local leaders in small communities also lack the requisite technical resources to manage broadband projects.