June 29, 2007

Statement of Chairman Dodd on Subprime Mortgage Lending Guidance

"The regulators have taken an important step in the right direction, but it only gets us part way to our final goal." "I applaud the regulators for this guidance. It establishes, once and for all, the principle that lenders must seriously and fully consider a borrower's ability to pay a loan back, at the fully indexed rate, before making a mortgage loan. Had regulators enforced such a standard over the past several years, and had lenders abided by it, many of the problems that homeowners and the markets are experiencing today would have been avoided." "While I congratulate the regulators for what they have done today, let me be clear: We still have a considerable distance to travel. The Federal Reserve must take the guidance, strengthen its protections by requiring escrow accounts and limiting prepayment penalties, and turn it into a regulation. Such a regulation would apply to all lenders, not just those that are federally-regulated. Subprime borrowers, who are disproportionately black and Hispanic, deserve strong protections to attain and sustain homeownership, regardless of whether they get a loan from a federal or state lender."