U.S. mortgage lending practices are “out of balance” and need to protect minority borrowers and those with less than pristine credit, Sen. Christopher Dodd, chairman of the Senate Banking Committee, said on Wednesday.
Lawmakers and many witnesses testifying at a hearing dubbed ‘Preserving the American Dream’ focused on borrowers who have been harmed by so-called subprime mortgages, traditionally higher cost loans aimed at borrowers with less than perfect credit histories.
Dodd, a Democrat from Connecticut, said he saw signs that homeownership “is under grave threat from predatory, abusive, and irresponsible lending practices undertaken by too many subprime lenders,” Dodd said in an opening statement.
Foreclosure filings were up 42 percent in 2006 from a year ago in large part because of weakness in the subprime mortgage market, Dodd said, citing research from Realty Trac.
Civil rights leader Jesse Jackson, a witness at the hearing, cited statistics that 52 percent of mortgage loans to African Americans were “high-rate” in 2005, while 19 percent of mortgage loans to whites were high-rate.
“Lenders and brokers have financial incentives to place borrowers in more expensive loans,” Jackson said.
During a five-year housing boom that ended in the summer of 2005, many lenders eased standards to many borrowers.
Dodd said “subprime credit can be a valuable tool in helping people become homeowners” but “the system is out of balance.” He said he looked forward to working with brokers, bankers, regulators and Wall Street to “restore this balance for the sake of the safety and soundness of the banking system.”