March 22, 2007
DODD PROTECTS HOMEOWNERSHIP, PRESERVES AMERICAN DREAM
Identifies Inaction of Regulators as Key Contributor to Subprime Mortgage Crisis, Unveils Action Plan to Keep Americans in Their Homes and Protect the American Economy Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, today heard from regulators, industry executives, and consumers at a hearing he convened to investigate the subprime mortgage crisis that could cause 2.2 million homeowners to lose their homes in the next few years. Today’s hearing, entitled “Mortgage Market Turmoil: Causes and Consequences,” was one element of Dodd’s comprehensive approach to the problem of rising home foreclosures and defaults, and his overall strategy to keep American families in their homes, ensure that America’s dream of homeownership remains alive, and protect America’s economy. Chairman Dodd heard from the following constituencies: · Regulators: Chairman Dodd revealed a pattern of neglect by federal bank regulators which he believes precipitated the subprime mortgage crisis. In late 2003 and early 2004, Federal Reserve analysts noticed a deterioration of lending standards, yet at the same time the Fed was encouraging development of alternative mortgages, including adjustable rate mortgages (ARM’s). The Fed then embarked on 17 consecutive interest rate increases, causing people with adjustable rate mortgages to experience substantial payment shocks. Dodd grilled representatives from the Fed, FDIC, OTS, and OCC on why it has taken them more than three years to act decisively despite evidence that they identified problems in the subprime market. “In my view, these actions set the conditions for the “perfect storm” that is sweeping over millions of American homeowners today,” Dodd said. · Industry representatives: Chairman Dodd invited executives from the top five subprime lending companies – HSBC, Countrywide, WMC Mortgage, First Franklin, and New Century – to explain their lending practices, particularly how people are sold loans that they cannot afford and how many borrowers are still receiving these loans. All but New Century Mortgage Corporation sent representatives. “Their absence from this hearing is regrettable. New Century played a leading role in pushing unaffordable subprime loans and they should be here to explain their actions,” said Dodd. · Consumers: Chairman Dodd heard from Ms. Jennie Haliburton of Philadelphia and Mr. Al Ynigues of Minnesota, who both testified of the hardships they endured due to predatory lending practices in the subprime market. “We should not let them struggle alone. We need to let them know, and the American people know, that we intend to fight for them,” said Dodd. Chairman Dodd laid out an action plan to prevent this crisis from occurring again, and to help keep Americans currently trapped in subprime mortgages in their homes. Dodd urged the regulators to finalize the recent subprime guidance as quickly as possible; recommended that the Fed use authority already available to them to prohibit abusive practices in the market; pledged to work with his Senate colleagues to pursue legislation to strengthen consumer protections; and announced that he will convene stakeholders – regulators, investors, lenders, GSEs, FHA, and consumer advocates – to work together to keep Americans in their homes.
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