Raise scrutiny to stop foreclosed dreams

You can't tune in a radio station for more than five minutes these days without hearing some huckster telling you to call soon for your no-money-down, no-income-verification loan.

If it sounds too good to be true, well, you know the rest, especially, and in vivid human detail, if you read the Daily Herald's four-part series, "The dream foreclosed," by Anna Marie Kukec and Deborah Donovan.

Not all who face foreclosure were irresponsible or ill-educated about borrowing. Some suburbanites face foreclosure because of illness, job loss or divorce. Some of the problems today were created when the mortgage industry, with government's consent, took steps to help low-and middle-income people get into homes when prices were climbing. No matter the reason, the series showed we all are affected. The human and financial toll is staggering.

A U.S. Conference of Mayors' report suggests a loss of $329 million in property taxes and $22 million in sales taxes in Illinois. It estimates a total hit of $3.9 billion to the greater Chicago region from foreclosures. In the Northwest and West suburbs, 6,662 households received foreclosure notices just through September of this year. The numbers are expected to continue spiraling upward through 2009.

Our elected officials are responding and they need to do so quickly, but carefully. It should not be up to all of us to bail out those who failed to exercise responsibility in signing up for no-interest, sub-prime or adjustable rate mortgages they fully knew they could not afford.

The onus falls heaviest on prospective homeowners to do their homework on loans and lenders. It's borrower beware.

We do, though, support requiring strict underwriting requirements and to weed out the con artists making money by knowingly giving loans to people who can't possibly pay. The state's financial regulators began testing and licensing loan originators in 2003 and only about half passed. That scrutiny must continue.

Barrington Hills native and U.S. Treasury Secretary Henry Paulson told Kukec FHA modernization legislation would lower down payment requirements and allow the FHA to insure bigger loans. Those don't sound like solid solutions. Shouldn't we be more particular about requiring down payments and examining applicants' ability to pay rather than expecting insurance to cover more problem loans?

We can see offering refinancing and help for some who can show they could pay before a personal crisis hit or who couldn't reach lenders after learning they were heading for default.

But the best government response to this crisis might now be in ensuring that it never repeats itself by requiring regular testing and vetting of loan originators. As Rolling Meadows mortgage veteran Stephen Calcari noted, much of today's crisis was created by greedy lenders. "I wish I had some answers beyond fiscal responsibility for all parties involved," he said. We need more of that. Much more.