Senator Christopher Dodd (D-CT) says he will introduce legislation that would crack down on predatory lenders and give homeowners more protection against expensive loans.
Dodd, the chairman of the Senate Banking Committee and a candidate for the 2008 Presidential election, said that "predatory lending needs to be stopped."
Let me be clear: affordable home loans are a good thing; predatory lending is not," Dodd said. My bill will end prepayment penalties which only exist in the subprime market, and which penalize homeowners for trying to do the right thing by refinancing their mortgage.
"It will prohibit brokers and lenders from 'steering' homebuyers to a more costly loan. Most importantly, my bill will help keep Americans in their homes while also helping to restore public confidence in our mortgage and capital markets.
Dodd's legislation would also clarify and supplement state laws regarding brokers' fiduciary duties to homebuyers, limiting the fees lenders can charge borrowers for late payments, and expand the authority to investigate deceptive lending practices to more federal agencies.
The major focus of Dodd's bill is ensuring lenders and brokers act in good faith towards borrowers, an approach that won praise from consumer groups.
The centerpiece of Senator Dodd's bill will establish in federal law the principle that all lenders have an obligation of good faith and fair dealing when making a home loan," said Margot Saunders of the National Consumer Law Center. "This approach will help restore a long-awaited measure of fairness to the mortgage market.
Dodd has been critical of the Bush administration's response to the housing market crash. When several federal agencies offered guidance for lenders to help delinquent homeowners, Dodd said the statement "comes very late."
Not only is todays statement late in coming, but it will not in and of itself ensure that as many people as possible remain in their homes," Dodd said. We cannot tolerate short term modifications that put off the day of reckoning until a time when the press attention is turned elsewhere. Lenders and servicers must modify loans for long-term affordability."
Dodd previously flexed his muscle as Banking Committee chairman by holding hearings on abusive credit card lending practices.
His calls for predatory lending crackdowns have been echoed in the House of Representatives, where Financial Services Committee chairman Barney Frank wants lenders who traded heavily in investments backed by subprime loans to be held accountable for their collapse.