On my watch, the American dream won’t be foreclosed by a nightmare

Apotential crisis is endangering the American dream of home ownership. For people like Delores King, that crisis is now.

Delores King has owned her home on the South Side of Chicago for 36 years, through seven presidents, through retirement, and into her second career as a grade-school foster grandparent. But recently, her home was threatened — thanks to a call from a broker named “Chad,” and thanks to a mortgage market that is imploding for millions of Americans.

Ms. King testified that, after an identity theft scam put her $3,000 in debt, she tried to do the right thing by paying it off.
She jumped at Chad’s telemarketing offer of a quick mortgage loan, and within a few weeks she had signed the papers for an adjustable-rate mortgage with a “teaser” interest rate of 1.45%. Even after the teaser rate expired, the mortgage broker assured her, she’d never have to pay more than $800 a month.

But he didn’t tell her that the rate was set to explode. He didn’t tell her that, on her income, she’d never be able to pay off the interest. He didn’t tell her that, two years later, her mortgage would reach $1,488.

Delores King’s monthly Social Security check is $950. And even with a part-time job, and help from friends and family, there was no way she could meet her mortgage payments.

Fortunately, Delores King received some help to save her home. But millions more homeowners aren’t so lucky. They stand to lose their homes to predatory lending practices.

A recent study estimates that predatory loans will force foreclosure on more than 2 million American families in the next few years. It is a homeownership crisis of unprecedented scope, and it could cost families as much as $164 billion in home equity. Victims can see their financial futures vanish.

Do those homeowners bear some responsibility for the mortgages they sign? Of course. But the lion’s share of responsibility belongs to unscrupulous actors in the mortgage industry who deceive customers into taking on mortgage debt they can’t possibly afford to repay. We know that these actors have targeted minorities, immigrants, the elderly and hard-working families who dream of one day owning their own home. They have ignored customers’ ability to pay, misled them about their credit, concealed exploding interest rates, and hidden thousands of dollars in payments, fees, taxes and insurance.

While federal financial regulators have a responsibility to protect American families, they instead, in many respects, have chosen to be spectators. Most significantly, the Federal Reserve first noticed loan standards eroding in 2003, or even earlier, but it wasn’t until just this year that they finally extended protections to some of the most vulnerable borrowers and, importantly, admitted that they could have done it sooner.

Even that modest step might not have been taken if it weren’t for sustained pressure from Congress. In six months as chairman of the Senate banking committee, I’ve worked to make a difference by holding two public hearings to expose predatory lending. Regulators have responded to this increased scrutiny by pledging to apply stricter guidelines to the subprime market. And I plan to keep up the pressure until victimized families can rest safe in their homes, and until predatory lending is stopped once and for all.

As I see it, we should take three steps to rein in predatory lending.

First, we must ease the burden on those like Delores King, whose mortgages are already signed, whose monthly mortgage payments are already skyrocketing, and whose homes are already at stake. That’s why, earlier this year, I convened a summit of lenders and regulators aimed at keeping Americans in their homes. Prominent leaders sat together around one table with consumer and civil rights groups. And every one of the summit’s participants agreed to concrete steps to keep foreclosure rates down. It was a promising start; now, we need to act on that consensus.

Second, regulators need to use the tools they already have to control exploding-rate mortgages, and other abusive practices, by quickly issuing a sensible regulation that would apply to all lenders, not just some.

And third, if regulators fail to act with sufficient force, we will need new tools. So I will introduce legislation to attack predatory lending, built on the simple principles that lenders shouldn’t make loans that borrowers can’t repay, and that borrowers should be treated fairly and openly.

In short, fighting predatory lending demands an effort on all fronts. The looming foreclosure crisis threatens to turn the American dream of homeownership into a nightmare for millions of hard-working, tax-paying, law-abiding families — which is exactly why we must join together to avert it.

“I will end up out on the street if something doesn’t change soon,” Ms. King told me in February. For millions of homeowners, that change needs to come now.

Dodd is chairman of the Banking, Housing and Urban Affairs Committee.

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