Though the proportion of subprime mortgages in the United States is not much , which is 12.5% only, however, due to the amplification of financial marketing, its impact has spread to the U.S. consumer market, macroeconomic and even the world’s capital markets. In order to effectively reduce the bad effects of the subprime crisis and prevent a recurrence of similar problems, the US government had took a number of policy measures and is likely they will introduce a series of new laws after the next president comes to power.
1. The establishment of non profit housing legal consultant agencies to help borrowers to guard against foreclosure. Because borrowers often do not understand the financial institutions of the loan scheme, it is easy to negotiate or in the event of default due to asymmetric information in the disadvantage. The responsibility of the housing Legal Adviser is to negotiate with the loan issuing institution on behalf of the borrower in signing, enforcing and violating the loan contract, and protecting the borrower’s lawful rights and interests.
2. Change the lending rate adjustment programme to make it more flexible. The most effective way to help them avoid foreclosure is to modify the terms of the interest rate adjustment in the loan contract to make them more resilient to the large number of subprime borrowers who adopt adjustable rate loans. CRL,center for Responsible Lending, a nonprofit research institute in the United States, says that the number of subprime mortgages currently in arrears or cannot be recycled is about $number, and if lenders are able to adopt more flexible mortgage-rate adjustment schemes, Instead of pushing up lending rates mechanically when the benchmark rate rises, these defaulting subprime borrowers can survive a temporary personal repayment crisis without default. The United States Congress has discussed the issue on several occasions, preparing to introduce relevant legislation to guide lenders to make the appropriate adjustments.
3. Relax the Federal Housing Authority’s mortgage application conditions to attract more borrowers. The United States Congress passed the Federal Housing Authority Modernization Act (the FHA Modernization Act) at the end of 2007, which eased the restrictions on applying for the Federal Housing Authority’s mortgages and lowered the minimum monthly repayment requirement to increase the attractiveness of the Federal Housing Authority’s mortgage loan, Allowing more borrowers with lower credit ratings to abandon private subprime mortgages instead to apply for a federal Housing Administration mortgage backed by the Federal Housing Authority.
4. In the short term, expand the Government’s support for the proportion of subprime-backed securities in corporate portfolios. In order to ensure the safe and stable operation of the Federal National Mortgage Association and the Federal Housing Mortgage Corporation, the Federal Housing Enterprise Regulatory Office has been rigorously monitoring its portfolio of assets, so the two government-backed portfolio of assets is basically low risk quality assets. But after the subprime crisis, the US Government was concerned that other commercial securities firms and investment firms in the two-tier market would amplify the subprime impact, requiring the government to support companies in the short term to take extraordinary measures to increase the holdings of subprime-backed securities.
5. Modifying the order of disposal of assets in the event of insolvency liquidation. As the housing market has fallen, subprime borrowers are mostly more indebted than they are worth, which means that mortgage debt cannot be offset by the disposal of collateral. For these families, declaring bankruptcy is the most effective way out of the debt crisis. But in accordance with the current liquidation of the asset disposal order, housing is the first disposal. Bankruptcy liquidation will result in borrowers being “homeless”. To this end, many politicians in the United States are calling for a change in the order of disposal of assets in bankruptcy liquidation, after the housing is listed in other less important assets, in order to avoid the displacement of subprime borrowers as far as possible.
6. The introduction of a mortgage market reform prohibits engaging in “predatory lending” operations. The immediate trigger for the subprime crisis was the collusion of lenders and subprime brokers, the loopholes in federal regulations and state regulations, and the fraudulent “predatory lending” business. To this end, the U.S. government will reform the subprime mortgage market management model, prohibit financial institutions engaged in “predatory loans” business. The federal government requires mortgage lenders to prove that borrowers have the ability to repay loans by checking tax records and so on, requiring all mortgage lenders to carry out “index guidance rates (fully-indexed rate)” and to establish third-party institutions, Supervision of the implementation of the two provisions of the lending institutions, if there is a violation, the mortgage loan issued as a “predatory loan”; To cancel the default penalty of early loan repayment, to minimize the financial burden of subprime borrowers; In accordance with the existing Loan Facts Act (Truth in Lending Act), Set up a regulatory agency for subprime brokers to increase transparency between subprime brokers and lending agencies.