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By Marcella Bombardieri, Globe Staff | August 8, 2007
DERRY, N.H. -- As the mortgage crisis deepens, causing stock market jitters and forcing middle class families out of their homes, the Democratic presidential contenders are seizing on the issue, a tailor-made opportunity for them to accuse Republicans of letting rapacious, unregulated companies victimize hardworking families.
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Yesterday in New Hampshire, Senator Hillary Clinton of New York said she would ban fees that penalize early repayments and create a $1 billion fund to help struggling homeowners avoid foreclosure.
Former senator John Edwards of North Carolina has called for banning a longer list of controversial lending practices, including balloon loans, in which interest rates grow dramatically over time.
Senator Barack Obama of Illinois introduced a bill that would impose new penalties on mortgage professionals found guilty of fraud and offer counseling for homeowners to avoid foreclosure. Senator Chris Dodd of Connecticut, chairman of the Senate Banking Committee, is touting his own efforts to combat the problem.
The more the crisis ripples through the economy, the more it will help Democrats make the case that Republican economic policies have spurned middle- and lower-income families, some campaign watchers said.
"It's an enormous opportunity for the Democrats to criticize the failures of the Bush administration, the fallout we are seeing from laissez-faire economic policies," Alan I. Abramowitz, a political scientist at Emory University, said yesterday.
In her speech at Ernest P. Barka Elementary School, Clinton said the next president must "restore a sense of fairness to our economy."
"What the president calls the ownership society, it's the yo-yo economy," she said. "Some go up and some go down, and someone is pulling the strings."
The issue hit home with some residents who heard Clinton lay out her plan to contend with the problems that began in the subprime mortgage market for borrowers with spotty credit records.
Julia Mitchell, 27, a teacher who lives in Manchester, said foreclosures are just one symptom of the economic squeeze her friends and family feel.
"My father says my parents may have to move from Derry because the property taxes are so high," said Mitchell, whose parents and brother are teachers. "So many of my friends can't afford anything" on the housing market.
When the Clinton campaign was calling registered Democrats to invite them to the speech, one staff member happened to reach Kristi Schofield of Hampstead. Schofield and her husband, who have three children, are being foreclosed on and must move out by Aug. 24, she said, so the campaign asked her to meet Clinton and then introduce the New York senator to the crowd.
Schofield's husband, a computer security consultant, lost his job to outsourcing. Meanwhile, their adjustable rate mortgage jumped three times from $2,400 a month to $6,000 a month, she said.
She described pulling her daughter out of dance lessons, selling her DVDs, and cashing out her husband's retirement fund, all in a vain attempt to hold onto the house.
"Everything was going to pay the mortgage," she said. "At one point last winter, we ran out of wood and oil to heat our home."
In addition to banning prepayment penalties, Clinton would also require lenders to include taxes and insurance in their calculations of whether the borrowers can afford the mortgage payments. She would force brokers to disclose that they earn higher profits from selling larger mortgages, meaning their advice is not necessarily in the borrower's interest.
She is also seeking to beef up state licensing standards for brokers and to publish an online registry detailing brokers' employment histories and complaints against them. Clinton said she would introduce legislation after Labor Day.
In addition to banning more lending practices than Clinton, Edwards wants to rewrite bankruptcy laws and create a fund to help homeowners free themselves from "underwater" mortgages that are larger than the value of their home.
Of the top-tier Democratic contenders, Edwards has been campaigning most aggressively on the struggles of working people. Yesterday, his campaign sought to portray Clinton as late to the issue and weaker in her response.
"We're glad Senator Clinton has chosen to follow his lead," spokeswoman Colleen Murray said in a statement. "The Edwards plan remains the most aggressive -- he supports a national law that would prohibit abusive lending practices, no exceptions."
Dodd's campaign had a similar reaction, pointing out that he cosponsored several bills since 2000 that were aimed at protecting consumers from predatory loans.
"Addressing the crisis will require more than rhetoric on the campaign trail," Dodd spokeswoman Colleen Flanagan said. "That is why as banking chairman, Senator Dodd has taken the reins on this issue and plans to continue ensuring that American homeowners are not taken advantage of."
But Congress, including Dodd's committee, has done little more than hold hearings since the current crisis started and has contributed to the problems by loosening regulatory requirements, said Lauren E. Willis, a professor at Loyola Law School in Los Angeles who studies predatory lending.
The Republican National Committee said that Clinton's plan would mean more big government and would probably be financed by higher taxes.
The Bush administration has said that the problems are mostly in the subprime market and are not damaging the economy.
Lenders have blatantly violated a law requiring that they make loans based on the borrower's ability to repay, Willis said, and regulators have done nothing about it.
"I really don't think it's a party-specific problem or an administration-specific problem," she said. "It is a problem in general."