First, the lack of regulation in the mortgage lending industry has hurt Maine homeowners. On one hand, certain predatory lending practices have trapped consumers into either unaffordable or unreasonably structured loans, which led to delinquencies and foreclosures. Maine’s subprime delinquency rate hit 25% as of the 3rd Quarter of last year. On the other hand, the lack of oversight in both banking and real estate sectors over extended the burden of consumer debt and overheated the housing market. As a result, homeowners in general have lost wealth. This is especially acute for middle and low income people. For a median income family their home equity represents about 35% of their wealth.
Second, the real estate and financial market meltdown and subsequently the “Great Recession” has hurt Maine’s economy. The Consensus Economic Forecasting Commission estimates that from the beginning of the Recession thru the end of last year, Maine lost nearly 32,000 non-farm jobs. The unemployment rate was 4.7% in December ‘07 and is now 8.3% in February. In construction alone, we lost about 4,000 jobs in the last two years.
Under the pressure of both a depressed housing market and a depressed job market, Maine’s mortgage delinquency and foreclosure rates have gone up steadily. Unfortunately, we anticipate these trends will continue as high unemployment and underemployment will persist through the end of 2010.
To avoid such disaster in the future, Maine Center for Economic Policy strongly supports extensive financial reform as laid out in Senator’s Dodd’s bill. In particular, we need an independent consumer financial protection agency to protect people from financial malpractices. More importantly, we need independent watchdogs to ensure a sound and healthy banking environment to protect against the kind of systemic risks that threaten to bring down the entire economy. Financial reform means financial security as well as job security for Maine people.