To hear Rep. Barney Frank (D-Mass.) tell it, unregulated lenders bear most of the blame for the current crisis in the U.S. mortgage markets."If only regulated banks made mortgage loans, we might not have this problem -- this is largely a problem in the unregulated segment of the mortgage market," Frank said at a "town hall" meeting in Minneapolis last week.
Frank, who chairs the House Financial Services Committee, equated the imploding subprime lending market to the collapse of the Interstate 35 West bridge in Minneapolis, saying both resulted from lack of regulation and oversight over vulnerable sectors of the economy.
"You cannot say you are for less government and then say you want better regulation in the mortgage industry, more funding for roads and bridges," Frank said.
Rep. Keith Ellison (D-Minn.) pointed to a map of foreclosures in Minneapolis and noted how many were from his neighborhood.
"Predatory lending foreclosures have torn holes in the fabric of neighborhoods not only in Minneapolis and St. Paul but across Minnesota and the nation as a whole," Ellison said. "Boarded-up homes drive down local property values and are the locus of crime and other illegal activities."
Victims told of seeing their homes go into foreclosure after they signed up for "creative" mortgage products. Homeowners said they were conned by brokers and lenders who often didn't explain the full terms of the new mortgage or show any documentation to prove it.
Although Minnesota is seeing fewer overall foreclosures and defaults than other parts of the country, the numbers are still increasing rapidly. A study conducted by the Greater Minneapolis Housing Fund found 11,207 foreclosures statewide in Minneapolis in 2006. The findings were nearly double the number found by RealtyTrac, which listed 5,996 foreclosures in the same time period.
Targeting Predatory Lenders
Frank has made predatory lending and stronger oversight of the mortgage market a prime focus of the Financial Service Committee since taking over as its chairman in the 110th Congress.
Frank has introduced legislation to force investors who bought bond securities containing subprime loans to cover the losses when the loans default.
Although the Federal Reserve has introduced new guidelines for lenders on preventing predatory lending, and several Federal agencies have set up a task force to police subprime lenders, Frank has called for stronger laws nationwide that prevent lenders from steering buyers into unaffordable loans or falsifying documentation of their income.
The Securities & Exchange Commission (SEC) announced Friday that it would be investigating the records of Wall Street's biggest investment banks to ensure they were not hiding evidence of larger subprime losses than the banks had publicly reported.
