Predatory Mortgage Lending Creating Crisis, Dodd Warns
HOMEOWNERSHIP
The New London Day
Renée Dudley
Boston University Washington News Service
7 February 2007
WASHINGTON, Feb. 7 – Sen. Chris Dodd, D-Conn., accused the mortgage broker industry Wednesday of predatory and irresponsible lending that, he warned, was creating a crisis for American homeowners.
Martin Eakes, CEO of the Center for Responsible Lending, told the Senate Banking, Housing and Urban Affairs Committee that more than a third of homebuyers who have subprime loans—high-interest loans given to buyers with poor or no credit histories—are likely victims of foreclosure.
Dodd, who chairs the committee, said that while the subprime loan market has helped borrowers acquire credit to buy homes, predatory practices have put other borrowers at high risk for failure.
He said more than half of subprime mortgages are “liars’ loans,” in which brokers sometimes make loan candidates appear more financially qualified than they actually are because the brokers are paid to get more people approved.
Dodd added that minorities are being particularly targeted for higher-cost subprime mortgages, regardless of their financial qualifications. Citing the 2005 Home Mortgage Disclosure Act, he said: “Over half of African-American borrowers and 46 percent of Hispanic borrowers were given high-cost subprime loans. By comparison, only 17 percent of whites took out such loans.”
But despite national trends, local housing and mortgage officials say they do not believe Connecticut is headed toward the crisis Dodd described at the national level.
“In Eastern Connecticut, my sense is that predatory lending, while it exists, is not a major problem,” said John Bolduc, executive vice president of the Eastern Connecticut Association of Realtors in Norwich.
Fritz Conway, lobbyist for the Connecticut Mortgage Bankers Association, said, “On the one hand you want to come up with creative products, but on the other hand you want sufficient protective measures.”
Mortgage broker John Read, president of Atlantic Financial Services in Groton, said the 2001 Connecticut Abusive Home Loan Lending Practices Act had a dramatic impact on the most egregious abuses by imposing a maximum interest rate but still allowing credit to be readily available to those who need it.
Dodd has not proposed any legislation to curb predatory lending practices, but Read said all that is needed is better enforcement of laws already in place.
“You can’t legislate morality or intelligence,” he said. “You can’t make a lender act in a moral manner or make the borrower act more intelligently.”
“My hope is that we don’t throw out the baby with the bathwater, and [that] any efforts to define and control predatory lending will be such that it won’t inhibit the availability of credit to the consumer,” Read said.
He added that a good loan process begins with the borrower. “The reason that loans are predatory is because buyers don’t take the time to educate themselves by reading what they are agreeing to,” he said. “Unfortunately, there will always be those who try to take advantage of others. There are people in the loan industry who care more about commission than about the parties involved.
“When you take an unscrupulous lender and a borrower who is unwilling to do the work they should do, it is a recipe for fraudulent lending. If it sounds too good to be true, it probably is.” Read added that predatory lending usually arises when loan candidates pursue out-of-state lenders.
Two witnesses at Wednesday’s hearing said they were victims of predatory lending offered through pop-up Internet loan ads and calls from telemarketers.
Jean Constantine-Davis, senior attorney at AARP, the lobbying group for seniors, urged more accountability in the subprime loan market in testimony before the committee. “I can’t help but to think how far we’ve come if we’re considering passing a law that tells lenders not to give mortgages to borrowers who can’t afford them,” she said. “This used to be second nature.”
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