At least one powerful presence at the U.S. Capitol – Sen. Christopher Dodd, D-Conn. and a presidential contender – is concerned about predatory lending.
After a speech last week in New York City, it seems that Connecticut’s newest presidential hopeful – who is also the incoming chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs – has on his mind a topic that has caused a lot of controversy in the mortgage industry: predatory lending.
Sen. Christopher Dodd, D-Conn., told a crowd at the 10th annual Wall Street Project economic summit that more diversity in the management ranks of mortgage firms would help close the “opportunity gap” that often causes minorities to be issued higher-cost mortgages than they were qualified to receive.
“Nothing is more emblematic of the fulfillment of the American dream than buying a home,” Dodd said in his speech on Jan. 9. “Homeownership means more than just securing a financial asset; it’s a symbol of achievement. It’s the source of financial security and stability that also heightens one’s sense of community, religious and civic involvement.”
Two days after his speech in New York, Dodd announced he would run for president. He is widely recognized as a long shot, and even described himself as a dark horse among other Democrats like Sen. Hillary Clinton, D-N.Y., who may seek the Oval Office, and those who already have announced their candidacy, including former vice presidential hopeful John Edwards and Sen. Barack Obama, D-Ill.
According to Dodd’s spokesman, Marvin Fast, Dodd has supported strong anti-predatory lending legislation that former Sen. Paul Sarbanes, D-Md., had introduced for a number of years.
During Dodd’s speech in New York, the senator cited statistics from the Center for Responsible Lending, which said that 2.2 million families with subprime loans made since 1998 have faced or will soon face foreclosure because of predatory lending practices.
“In best-case scenarios, victimized homebuyers end up paying thousands of dollars more than they should due to unnecessarily high rates and fees and hidden back-end costs,” Dodd said in the speech. “In the worst instances, homebuyers are slowly robbed of their homes’ equity until they, and their families, end up in default and foreclosure. In fact, foreclosures will cost homeowners as much as $164 billion in lost wealth, mostly in home equity that has been or will be stripped away.”
‘It’s a Concern’
Dodd told reporters after his speech that, if pressuring financial services companies and other lenders to improve their lending practices does not yield results, a new law requiring them to do so may be necessary, according to the Associated Press.
“I’m not overly anxious to pass legislation,” Dodd told the AP. But if the problems aren’t fixed, he added, “The law will be changed.”
Additionally, Dodd told the AP after his speech that he wants to hold hearings to discuss whether company shareholders should have a greater say in executive compensation.
“It’s a concern – how can it not be?” he said, pointing out that the large Christmas bonuses doled out on Wall Street are bigger than some community’s budgets.
He also cited in his speech studies that have shown that minority homebuyers are disproportionately affected by predatory lending practices. Home Mortgage Disclosure Act data showed that in 2005 almost 55 percent of black homebuyers and 46 percent of Hispanic borrowers were issued high-cost mortgages. Only 17 percent of white homebuyers were similarly affected.
“Even after accounting for factors like credit history, analysts still cannot explain these disparities,” Dodd said in his speech. “What we do know, however, is that many of those who were issued high-cost mortgages were qualified for more affordable, market-rate loans.”
Dodd outlined several steps he hopes will help combat problems such as predatory lending. He first wants to establish a working group on “Ways to Expand Capital Access and Opportunity” in order to foster discussion about measures that can be taken to expand opportunity and access in the economy.
The senator also said he intends to hold a hearing on diversity in corporate America and discuss how diversity can have a positive impact on companies’ bottom lines.
“That hearing will look at what, if any, progress has been toward promoting diversity in the executive suites and boardrooms of our country and also examine the opportunity minority money managers have to manage public pension funds, the prevalence of subcontracting and procurement opportunities to qualified minority businesses, and public and private efforts to promote business lending to minority entrepreneurs,” Dodd said.
Another hearing, he added, will be designed to specifically examine credit issues, including mortgage lending practices.
“I want to join you in asking if our regulatory agencies are doing all they can to protect borrowers from usurious rates and pernicious terms for credit,” he said.
