Senator Dodd Commends Freddie Mac On Higher Standards For Subprime Mortgage Market
March 1, 2007
The following information was released by Connecticut Senator Chris Dodd:
Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, today commended a major participant in the mortgage lending industry on its decision to toughen its standards on subprime lending. In his continuing effort to bring economic security, prosperity, and opportunity to all Americans, Chairman Dodd has been raising awareness of predatory lending practices in the subprime mortgage market and urging regulators to apply the same guidelines to the subprime market that the prime market receives. Such guidelines would help protect vulnerable borrowers from mortgages they cannot afford, and in doing so may help curb the rising foreclosure rates and defaults on home loans occurring across the country. Chairman Dodd sent a letter to the regulators on December 7, held a hearing on predatory lending practices on February 7, and also raised the issue with Fed Chairman Ben Bernanke when he testified before the Committee on February 14.
"It is vitally important that we encourage home ownership. It is a core element of the American dream. But for far too many families that dream becomes a nightmare when certain predatory lending products and practices strip them of their equity and trap them in unaffordable mortgages leading ultimately, in far too many cases, to foreclosure.
"I want to congratulate Freddie Mac for its leadership in announcing today that it will only buy subprime ARMs that are underwritten to the fully-indexed rate. This is a responsible standard that ensures that these borrowers will have the ability to repay their loans, thereby protecting their home equity. This is the right thing to do both for the borrowers and for Freddie Mac.
"I call on Fannie Mae and the Federal Home Loan Banks to adopt this policy as quickly as possible. I also hope that the federal financial institutions regulators will also move to quickly extend the exotic mortgage guidance to the subprime ARM market, as several members of the Senate Banking Committee have urged. As I have said repeatedly, there is no justification for providing fewer protections to vulnerable subprime borrowers, who are disproportionately black and Hispanic, and less able to withstand payment shocks, than have been provided to prime borrowers. The time to act is now.
"Freddie Mac has shown real leadership in protecting consumers from abusive and predatory lending practices. I applaud their willingness to take this step."