Schumer warns of liar lendingMortgagePress.comSenator Schumer,predatory lending
Sen. Chuck Schumer of New York is drafting a predatory lending
bill that would create suitability standards for mortgage lending
and a national regulatory system for all mortgage brokers. The
suitability standard will ensure that mortgage lenders and brokers
"never issue a loan that the borrower cannot afford," Schumer
said.
The bill would also create a suitability standard for borrowers
and prohibit pre-payment penalties, according to a statement
released by Federal Reserve Chairman Ben Bernanke's office. At the
Joint Economic Committee hearing, Bernanke argued that the Fed
hasn't been asleep at the wheel on sub-prime mortgages, telling
Congress that nontraditional mortgage guidance from the Fed "has
been in the air for some time."
Nationally, 1.8 million Americans are at risk over the next two
years as their monthly payments rise under the terms of these
sub-prime loans. The senator based his analysis on mortgage data
from the U.S. census, federal banking regulators and the Joint
Economic Committee.
Schumer is offering legislation to regulate all mortgage
brokers, outlaw loans in which borrowers aren't properly informed
of escalating payments and create a New York task force to try to
help affected homeowners restructure their loans and keep their
houses.
"The sub-prime market is the Wild West of mortgage loans and
it's time we bring a sheriff to town," Schumer said. "The first
step is making sure that borrowers are protected ... from loans
that promise them the world and instead give them a mountain of
debt."
Sub-prime lending has come to the forefront of discussion lately
because of an increased number of foreclosures among people with
those mortgages. Several sub-prime mortgage companies have also
gone out of business.
Sen. Hillary Rodham Clinton recently called the sub-prime market
"broken" and said the Federal Housing Administration should issue
more mortgages at lower rates to working-class families so they
don't have to seek sub-prime loans.
The problem was underscored when the Mortgage Bankers
Association said that the number of new foreclosures reported
during the fourth quarter of 2006 reached the highest level in 40
years. Foreclosures and delinquency rates were the highest for
sub-prime loans.
U.S. Treasury Secretary Henry Paulson said that his department
will gather federal and state banking regulators to discuss the
sub-prime issue.
"As we think about the lessons learned, we need to think about
the regulatory structure," Paulson said. "Also, we need to think
through the consumer protection area in terms of looking at issues
like predatory lending and fraud."
Barbara Roberts, broker/owner at Prudential Fox Properties in
Oneonta, N.Y., said she advises clients to be pre-approved from a
traditional lender before making an offer on a house and before
looking for houses. That pre-approval lets people know how much
house they can afford.
Potential buyers should also ask about the terms of the mortgage
and what the payments are going to be in three to five years. Some
of the liar loans bring people in by promising a low payment, which
later balloons.
Schumer emphasized that he is not talking about local,
traditional mortgage lenders. Also, not all sub-prime lenders are
unscrupulous. If no loans were made to people with
less-than-perfect credit histories, homeownership would be
impossible for millions of Americans. But there is also no doubt
that the problem of defaults in the sub-prime market is
worsening.
"Congress must respond to the emerging crisis in the sub-prime
market," Schumer said. "When so many mortgage brokers are able to
deceive our most vulnerable families into loans that they can never
afford without batting an eye, the system is broken."
Schumer said his efforts are focused on what happens before
people get to the point of facing foreclosure. The New York
senator, who chairs the Senate Banking Subcommittee on Housing,
said he will be introducing the bill very shortly.
For more information, visit www.house.gov/jec.
