WASHINGTON, March 22, 2007
Blame Flies In Risky Mortgage Meltdown
Pressure Rises For Congress To Act As More Homeowners Are Unable To Meet Payments
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Play CBS Video Video Stopping Predatory Lending Only On The Web: Sen. Christopher Dodd, D-Conn., talks with Anthony Mason about his fight against predatory lending. He emphasizes his support for subprime lending.
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Video Subprime Mortgage Meltdown Problems among subprime lenders could lead to as many as 2 million Americans losing their homes. Lenders are toughening credit standards, but it may be too late for many. Anthony Mason reports.
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Financial company executives testify before the Senate Banking Committee hearing on subprime mortgages on March 22, 2007. From left are, WMC Mortgage Chief Executive Officer Laurent Bossard; Countrywide Financial Executive Managing Director Sandy Samuels; HSBC Finance Corporation Chief Executive Officer Brendan McDonaugh; Janis Bowdler; and First Franklin Financial Corporation President L. Andrew Pollock. (AP)
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Under fire from lawmakers, federal regulators said they lacked full authority to prevent the crisis spawned during the soaring housing boom of 2003-2005.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, laid out what he called a "chronology of regulatory neglect" as banks and other lenders loosened their standards for making riskier mortgage loans during the boom.
"Our nation's financial regulators were supposed to be the cops on the beat, protecting hardworking Americans from unscrupulous financial actors," Dodd said. "Yet they were spectators for far too long."
More than 2 million homeowners could lose their houses in the subprime mortgage meltdown, reports CBS News correspondent Anthony Mason. About 300,000 are already in foreclosure and more than 50 lenders are in serious trouble or have gone belly up.
Many mortgage lenders haven't come under the Federal Reserve's supervision because their primary regulators are state banking authorities. However, Dodd and others maintain, the central bank does have authority under federal law to exert jurisdiction over those companies and broaden lending regulations to cover them.
Some of the biggest companies in the so-called subprime mortgage market were called to account before the banking panel.
The distress in subprime mortgages — higher-priced home loans for people with tarnished credit or low incomes who are considered greater risks — has roiled financial markets and stoked anxiety that it could spill over into the broader economy.
Risky lending practices became so lax that in the past two years 40 percent of first-time home buyers put no money down. Now delinquency rates are soaring, adds Mason.
Company executives said they had tightened their lending practices and eliminated some higher-risk types of mortgages. They urged Congress not to rush in and overreact.
"We take the situation very seriously and we're taking strong steps" to correct problems, testified Brendan McDonagh, the chief executive of HSBC Finance Corp.
With millions of homeowners said to be at risk of losing their homes in coming years, the issue took on an increasingly political complexion Thursday. While a number of politicians, consumer advocates and community activists are clamoring for Congress to act, industry interests and some Republican lawmakers are warning that new restrictions on mortgage lending could choke off credit to those who most need it.
Away from the hearing, Democratic presidential contender Sen. Barack Obama called on Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson to convene a "homeownership preservation summit" bringing together major players for the purpose of stemming the foreclosure tide.
"We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes," the Illinois Democrat said in a letter to Bernanke and Paulson.
Dodd, who also is seeking the party's presidential nomination, warned at the hearing that some 2.2 million homeowners could lose their homes in the next few years.
Acknowledged Roger Cole, head of the Federal Reserve's banking supervision division, "I will say that given what we know now, yes, we could have done more sooner."
Under pointed questioning from Dodd, Cole promised to put in motion a process at the central bank that could lead to a broadening of federal rules governing mortgage lending standards.
A patchwork of federal and state regulatory agencies hold jurisdiction over financial companies, putting many subprime mortgage lenders outside of stringent regulation, the regulators said.
Earlier this month, the Fed and the other four federal agencies that regulate banks, thrifts and credit unions called on lenders to exercise caution in making subprime mortgage loans and strictly evaluate borrowers' ability to repay them. The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans.
Dodd said he wanted to know why it took the regulators more than three years to act "despite evidence that they themselves identified problems in the subprime market."
© MMVII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
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See all 77 Comments...; let everyone pay the exact same interest rates. There is a class system going on in America, those with perfect credit and those without. Those with perfect credit can buy things at less interest than those with less than perfect. The less than perfect are expected to pay sometimes 4 to 5 times the interest.
Posted by httpwwwnews at 02:11 PM : Mar 24, 2007
First, no - people over-buying is the major reason people default on credit cards. Americans are consumed with instant gratification.
Further, why should I, with an 800+ credit rating earned by hard work, budgeting, financial diligence and a nose-to-the-grindstone work ethic, have to pay the same interest rate as those who overextend themselves and haven't the foggiest idea of living within their means?!?
If you can't afford it, do without it. If you want it anyway, education or a mastering a craft can help remedy that.
you clearly have a robust understanding of the mechanics. i appreciate your response ... and your self restraint :-)
i read your whole thread and thru it all was the question why. why would the fed lower rates to unprecedented levels and why would the lenders engage w/ risky borrowers. it seems too easy to just say that they saw the opportunity for profits by allowing for what they knew would be a high percentage of defaults. if their margins are higher for defaults ... than why not do this for all income types and why wait until 2000?
no need to limit your explanation. my inquiries are not driven by partisan motives ... only fundamental curiosity.
I could go one, but I have already passed 200 words, lol, sorry.
I could go one, but I have already passed 200 words, lol, sorry.
First of all, the banks now control America's economy. When the housing boom in the early 2000's took off, it was brought about by the Fed lowering interest rates to record lows, not seen in nearly 100 years, which deceived many Americans, and made them believe that money was going to be easy to get and easy to repay. Heck, 5.5% home loans were unheard of since the 60's, and many poor and middle class Americans thought they might have a chance to buy a new home, and pay for it. So they went and got loans and bought homes, using ever dime of savings they had. Many of the loans were ARMs, (Adjustable Rate Mortgages), many of which were only locked in at these low rates for three years or less. Called substandard loans, because they were given to people who had only minimal or no credit. When it came time to renew these ARMs, the rate was elevated to 8, 10, and sometimes even higher rates. These poor and middle class folks couldn't afford it. Many were poor, not well educated, and didn't understand how an ARM really worked. Now we have the problems we do.
Now the question is why the rest of us have to bail them out? That is what they are asking for--the real hardworking, responsible people who pay their debts and should pick up the slack for the losers.
If there was any justice in the world, the irresponsible would wind up in the gutter where they belong. Not in some nice house that responsible people can't afford because they have to pay taxes to support these losers.
Thomas Jefferson
What does this have to do with minorities? This is an issue of lower incomes. Of course, there are many lower income people who are minorities but the issue affects lower income WHITES as well.
I wish people would stop confusing race and class at every turn. Based on your blanket comment about minorities, Oprah is a sub-prime borrower and Jethro from West Virginia is not.
Get a clue.
That they were short sighted, and that the "regulators" were lax - this is a shock!!!!
While I believe it is the duty of this country to insure affordable housing is created and maintained for our citizens - I have no sympathy for people who have abused their credit - bought more house than could could afford - and now are crying because they have defaulted. Not all of these loans were given to minorities - plenty of white, yuppie, "bigger the better", buyers pushed the limit, not because they had bad credit, but because they wanted more than they could have afforded traditionally - they needed someplace to park the Mercedes and Lexus.
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