OPENING STATEMENT OF CHAIRMAN CHRIS DODD - HEARING ON PRESERVING THE AMERICAN DREAM: PREDATORY LENDING PRACTICES AND HOME FORECLOSURES
U.S. Senate Committee on Banking, Housing, and Urban Affairs Feb 7, 2007 - - The Committee will please come to order. Today's hearing is entitled Preserving the American Dream: Predatory Lending Practices and Home Foreclosures. This hearing is particularly timely in light of news that has been coming out in recent days about the wave of delinquencies and foreclosures facing American homeowners.
Let me start by recognizing the work of Senators Allard, Bunning, Reed, and Schumer, who held joint subcommittee hearings last year to examine the impact of exotic mortgages on home buyers and homeowners. They deserve credit for raising the awareness of many of us to the risks of these products. I consider today's hearing a continuation of their good work.
Today, the Committee will focus its attention more specifically on predatory lending practices that are found primarily in the subprime market and how these practices may be eroding the foundations of homeownership for millions of American families.
Let me make myself clear on one important point: I do not believe that all subprime or exotic lending is predatory or abusive. To the contrary, subprime credit can be a valuable tool in helping people become homeowners, and in unlocking the equity in their homes.
For many years, the battle so many of us fought was to make credit available to neighborhoods that had been redlined, or to people, particularly minorities, who felt the sting of rejection regardless of their creditworthiness.
In response to this injustice, and after years of hard work by people like Reverend Jackson, Hilary Shelton, and many, many others, we passed the Community Reinvestment Act and the Fair Housing Act, so that credit to buy a home or build a business would be available to all Americans.
As a result, we have seen homeownership grow. Every one of us has spoken about homeownership-- how it provides stability and a chance to build wealth for the vast majority of Americans. It is the most valuable asset that most of us own. Our homes provide us with a financial cushion on which we can draw to send our children to college, pay for unexpected health care expenses, or finance a secure retirement.
To the extent that the creation of the subprime market has added to this flow of credit in a positive and constructive way, in a way that helps build wealth-- I welcome the development.
However, it is not enough simply to create homeownership-- we must sustain, preserve, and protect it as well. Yet, today, we are seeing increasing evidence that this important source of wealth for so many American families is under a grave threat from predatory, abusive, and irresponsible lending practices undertaken by too many subprime lenders.
The borrowers who are too frequently targeted for these loans are minorities, immigrants, the elderly, and the unsophisticated. For these families, failure means the loss of a home, the loss of wealth, the loss of middle class status, and the loss of the opportunity for financial security.
The growth of the subprime market has been incredible-- the amount of subprime lending more than tripled from 2000 to the end of 2005, from about $150 billion to nearly $650 billion; it is now over 20% of the entire market.
But this incredible growth has come at what FHA Commissioner Brian Montgomery has called "a tremendous cost. A cost that often outweighs the benefits of home ownership."
Today, there are too many incentives in the subprime market to make loans that put borrowers at too great a risk of failure.
For example:
* Over half of subprime mortgages are stated-income loans, loans which the industry often refers to as "liars loans." The question is, who's lying? According to a survey of over 2,000 mortgage brokers, 43% of brokers who make these loans do so because they know that their borrowers don't have the income to qualify for the loan. Why do they make these loans? Because they are paid more to do so.
Connecticut's Chris Dodd is a senior Democratic leader in the United States Senate. Senator Dodd is currently a senior member of the Health, Education, Labor and Pensions Committee and is the senior Democrat on its Education and Early Childhood (more...)
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