Homeowners Face Crisis from Predatory Lending: Dodd

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Homeowners face crisis from predatory lending: Dodd

By Robert Schroeder

WASHINGTON (MarketWatch) -- U.S. homeowners are facing a "crisis" thanks to predatory and irresponsible lending practices, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said Wednesday.
In an opening statement before a committee hearing about predatory lending, Dodd cited statistics showing the burgeoning growth of the sub-prime lending market, and said minorities, immigrants and the elderly are frequently the victims of predatory loans.
"It is time for the Congress, the administration, and the lending industry to face up to the fact that predatory and irresponsible lending practices are creating a crisis for millions of American homeowners at a time when general economic trends are good," Dodd said.
Democrats in both the House and the Senate have promised to put predatory lending and other consumer issues high on their legislative agendas this year. In the House, Reps. Mel Watt and Brad Miller of North Carolina are preparing to introduce a bill that would restrict the sale of loans with high interest rates and bar certain types of fees.
Industry concerned
The mortgage-banking industry, meanwhile, said new rules could limit consumers' choices of mortgage products.
The Mortgage Bankers Association "is concerned that approaches such as rigid, new underwriting standards and the imposition of suitability requirements will rollback hard fought homeownership and fair lending gains and will stifle innovation and take good financing options out of the hands [of] homeowners," said Doug Duncan, the group's chief economist.
Dodd said sub-prime lending accounts for 20% of the U.S. lending market, or about $650 billion. About 70% of those loans have costly prepayment penalties that trap borrowers into high-cost mortgages, Dodd said.
Dodd told reporters following the hearing that predatory lending can be addressed without new laws. "You can get into unintended areas" with legislation, he said.
But he had harsh words for certain types of mortgages, like interest-only loans, that have gotten borrowers in trouble.
"There's something about the products going on here that's causing the problem," he said.

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