Dodd vows to crack down on lending abuses

Responding to a wave of defaults spreading through the sub-prime mortgage market, Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, on Wednesday said he would soon introduce legislation to crack down on lending abuses.

“Let me be clear: Affordable home loans are a good thing; predatory lending is not. Predatory lending needs to be stopped, which is why I intend to introduce legislation that will put an end to the practices that have forced thousands of Americans into foreclosure and put thousands more in danger of losing their homes,” Dodd said in a statement.

{mosads}The announcement marks a reversal for Dodd, who had remained unconvinced that Congress needed to step in to rein in abuses, up until now. The Fed, he argued during a press conference over the August recess, had the power under the 1994 Home Ownership and Equity Protection Act to tighten consumer protections.

By contrast, Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, has been mulling predatory lending legislation all year. He is expected to introduce a bill shortly.          Dodd said his legislation would “prohibit brokers and lenders from steering homebuyers into a more costly loan” and ban brokers from “acting as free agents who play lenders and borrowers off against each other.” The legislation would also bar prepayment penalties so that troubled borrowers won’t be penalized for refinancing their mortgages, Dodd said.

Defaults of sub-prime mortgages have wreaked havoc in the credit markets in recent weeks, raising debt costs and making it more difficult for companies to obtain financing. This year, more than a million sub-prime mortgages will reset at higher interest rates, according to the Federal Deposit Insurance Corporation. Nearly as many will reset at higher rates next year.

Dodd, a presidential hopeful, has backed a proposal to reform the Federal Housing Administration so that the agency can help millions of borrowers refinance into more affordable mortgages. He has also called repeatedly for the Bush administration to lift the temporary caps on Fannie Mae and Freddie Mac so that they can provide more liquidity to the market. But he has not gone as far as other Democratic hopefuls, Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.) and former Sen. John Edwards (N.C.), who have called for substantial funds to rescue borrowers at risk of foreclosure.