Congress is taking a close look at consumer pocketbook issues this session, with credit cards and predatory lending practices high on the list of concerns that the new chairmen of the Senate Banking Committee and House Financial Services Committee wish to address.
The issue of predatory lending was raised by several members of the Senate Banking Committee at a February 14 hearing with Federal Reserve Board chairman Ben Bernanke. “This distress in the subprime area is a significant concern. I’m obviously following it very carefully, both in terms of the impact it has on the borrowers and also…to see what effects it has on lenders,” Bernanke said during questioning.
Senate Banking Committee chairman Chris Dodd, D-Conn., reiterated that while he is a strong advocate of subprime lending, he is “very concerned” about the predatory lending practices that go on. “That concern about providing those subprime borrowers with the same kind of protections we do to the prime borrowers is a matter of concern to many here on this committee,” Dodd said.
At a February 7 hearing of the Senate Banking Committee Dodd said predatory and irresponsible lending practices were creating a “crisis” for millions of homeowners at a time when general economic trends are good. Dodd declared that “the system is out of balance,” and put regulators on notice that they should “plan on being at this table in the next few weeks.”
Martin Eakes, CEO of the Center for Responsible Lending, described the current subprime mortgage market as a “quiet but devastating disaster,” adding that analysis of subprime mortgages made in recent years shows that 2.2 million families will lose their homes to foreclosure. These foreclosures could largely have been avoided if sounder lending practices had been followed, he said.
As housing appreciation slows in many parts of the country, Eakes said, it is clear that the problem will only grow worse. “All indications are that subprime mortgage loans are headed toward the worst rate of foreclosures in modern mortgage market history,” according to Eakes.
Subprime mortgages are no longer a niche market and now make up about 20 percent of all home loans originated in the U.S., Eakes explained. More than half of the African-American community and 40 percent of Latino families get their loans via the subprime market. “If current trends continue, it is quite possible that subprime mortgages could cause the largest loss of African-American wealth in American history,” Eakes said.
National Association of Mortgage Brokers (NAMB) president Harry Dinham told the hearing that the problem of foreclosures is complex and will not be corrected by simply removing products from the market. Dinham said Congress or the administration should fund an independent study that is broad enough to take into account all the possible causes for foreclosure.
Meanwhile, both the House and the Senate are focusing on credit card issues this session. House Financial Services Committee chairman Barney Frank, D-Mass., and Rep. Carolyn Maloney, D-N.Y., chairwoman of the Financial Institutions and Consumer Credit subcommittee, said February 12 that the problems and concerns consumers are having with credit card companies are “definitely on the agenda of this committee.” The subcommittee will schedule hearings soon to examine consumer complaints, Frank and Maloney said
In the Senate, Dodd, launched a series of hearings into the credit card industry January 25, saying his concerns include the increase in consumer debt linked to credit cards, as well as the rise in both credit card solicitations and penalty fees.
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