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Resolutions & Amendments

38th International Convention - San Francisco, CA (2008)

Banking and Housing Crisis

Resolution No. 87
38th International Convention
Moscone West
July 28 - August 1, 2008
San Francisco, CA

Mortgage lenders have made more than $2.5 trillion in sub-prime loans since 2005. Projections by Fitch Ratings indicate that 43 percent of recent sub-prime loans will be lost to foreclosure, and at least two million American families are expected to lose their homes to foreclosures over the next two years. Many of these homeowners could have qualified for conventional loans with better terms, but people often were pushed into sub-prime loans by unlicensed mortgage brokers using deceptive tactics and motivated by the more favorable commissions; and

Mortgage originators, such as Countrywide Financial, Washington Mutual, and New Century Bank, packaged and sold risky mortgages to others through securities known as collateralized debt obligations created by investment banks. These securities were characterized as safe investments by credit-rating agencies. This resulted in a concentration of risk for speculation by hedge funds that bet on ever-increasing real estate prices. Investment banks also got hurt because they bet an increasing share of their own capital on mortgage-related investments; and

Many pension funds have suffered losses from their investments in financial services companies and housing-sector companies battered by sub prime losses, while other funds invested directly in these exotic securities without understanding their underlying risk; and

Government regulators, including the Federal Reserve and the U.S. Securities and Exchange Commission (SEC) failed to adequately police these practices. More than a dozen companies are now under investigation by the FBI for practices, such as accounting fraud and insider-trading, that were fueled by the crisis; and

Effective government action is urgently needed to avoid a flood of needless foreclosures that will devastate families, destroy communities, and do further damage to the economy as a whole. The negative effects from these foreclosures are substantial: property values are dropping by billions of dollars, the property tax base is shrinking, and millions of Americans who depend on a robust housing market are losing jobs and income; and

The government has already intervened to support Wall Street by bailing out  Bear Stearns and providing low-cost loans for the big investment banks, but has taken limited action to help homeowners and investors; and

The Bush administration’s response to the crisis has been to recommend overhauling the financial system not by beefing up regulation, but by proposing a plan favored by the U.S. Chamber of Commerce that would further reduce the ability of the SEC to police securities markets.

That financial institutions must be effectively regulated to ensure the transparency and accountability of mortgage lenders, investment banks, credit-rating agencies, hedge funds, private equity funds, off-balance-sheet lending vehicles and other structured credit products. Regulators must act immediately to protect consumers and the public interest in the capital markets; and

That Congress must require that credit-rating agencies have clear fiduciary duties to investors and be independent of conflicts with investment bankers and other Wall Street firms. Congress needs to increase the SEC’s power to regulate these agencies, possibly through an independent body like the Public Company Accounting Oversight Board created by the Sarbanes-Oxley Act; and

That action be taken by Congress to protect deserving homeowners from bank foreclosure by allowing court-supervised loan modifications as a necessary complement to legislation that creates a new refinancing program. For deserving homeowners who were tricked into high-cost, risky loans, lenders should be required to modify loans by reducing balances and switching to lower-cost fixed-rates to ensure long-term sustainability.