WASHINGTON, DC - U.S. Senator Bob Casey (D-PA) today responded to remarks made by President George Bush proposing one of his first responses to the subprime mortgage crisis. Senator Casey has joined other members of the Senate to introduce legislation to target bad actors in the mortgage industry and has called on the Administration and the Federal Reserve to act to address the crisis.
Senator Casey said: “Over recent months, I have heard the heartbreaking stories of Pennsylvanians who have had the American dream turn into a nightmare as they lost their homes in the subprime mortgage crisis. Just yesterday in Erie, I talked with two women who both lost their homes and who are now part of an FBI investigation into unscrupulous lenders.
“People in danger of losing their homes demand swift and effective action. President Bush’s remarks today offer a few good, if belated, steps. However, his proposal does not do enough for families facing foreclosure or enough to curb bad brokers in the future.
"Reforming FHA and the tax treatment for families who are able to work out write downs of their home is a good step, but the FHA reforms do not go far enough and the President continues to ignore the role Fannie Mae and Freddie Mac can play if he would raise their portfolio caps.
"In addition, the President remains woefully behind the curve in reigning in predatory subprime lending practices. The Borrowers Protection Act that I support was introduced five months ago. And working with other members of the Senate, I was able to help secure committee approval in July for a $100 million appropriation for mortgage counseling.
“Unscrupulous brokers are seasoned experts in manipulation and deception and we should outlaw practices and loan features that are clearly abusive. It is not enough that the President is only now ordering Treasury Secretary Paulson and HUD Secretary Alphonso Jackson to look into predatory lending and disclosure.”
On April 23, Senator Casey joined Senator Dodd and the rest of the Banking committee in writing to Chairman Ben Bernanke asking him to act on the Federal Reserve Board’s obligations under the Home Ownership and Equity Protection Act (HOEPA) of 1994.
The letter asked that the Fed, at a minimum, do the following:
1. Require all mortgage originators to evaluate a borrower’s ability to repay prior to making a mortgage loan and that the Fed create a presumption that a loan that requires a borrower to pay more than 50 percent of his or her income to cover the cost of principal, interest, taxes, and insurance is not a sustainable loan and fails to meet this test;
2. Designate the failure to escrow taxes and insurance as an unfair and deceptive practice;
3. Restrict the use of low- and no-documentation loans.
The Borrower's Protection Act, introduced in May by Senators Schumer, Casey and Brown:
1. Establishes a fiduciary duty for mortgage brokers and other non-bank mortgage originators;
2. Creates a faith and fair dealing standard for all originators;
3. Requires originators to underwrite loans at the fully indexed rate;
4. Requires originators to create escrow accounts to pay taxes and hazard insurance on subprime loans;
5. Prohibits steering (i.e. brokers may not direct or counsel a consumer to rates, charges and principal amount or prepayment terms that are not appropriate or suitable for the them);
6. Holds lenders responsible for policing their associated appraisers and brokers and;
7. Prohibits originators from influencing appraisal process.
