Hearing of the U.S. Senate Committee on Banking, Housing, and Urban Affairs

Statement

Hearing of the U.S. Senate Committee on Banking, Housing, and Urban Affairs
"Ending Mortgage Abuse: Safeguarding Homebuyers"

Statement of Mike Crapo

Mr. Chairman, I appreciate the opportunity to work with you on this important subcommittee, and I appreciate this hearing today in an effort to focus on ending mortgage abuse and safeguarding homebuyers. I, too, look forward to working with you and my other colleagues as we monitor the performance of the mortgage market and determine what, if anything, Congress should do.

Our focus needs to be on finding the right balance. We have already had hearings in the full Committee on this issue in general, and the same types of horror stories as you have pointed out in the example from New York, Mr. Chairman, were brought up there. And I do not believe there is anybody in America who would or, frankly, who could justify the kinds of practices that have been described in these hearings, and certainty those types of abuses need to be stopped.

The question that we need to focus on is: How do we need to adjust the system? And what type of balance do we need to reach. Actions that we take which would restrict credit would very probably avoid the abuses that we have heard about in the hearing so far today and in previous hearings. Actions which go too far could restrict credit to those who actually would benefit from having credit or perhaps would have benefited from having a different level or different type of credit arrangement. And I think we have got to reach that balance where we make sure that one of the strengths that help people move into homeownership - namely, the availability of credit in this county - is not harmed in our effort to avoid the serious abuses about which you talked, Mr. Chairman.

It is important to note that, in addition to regular meetings and forums with mortgage market participants, our federal financial regulatory agencies have undertaken a number of important initiatives already in response to this issue in recent months to try to help address problems in the subprime mortgage market. These activities range from a recent joint statement encouraging banks to work constructively with borrowers who find themselves in difficulty making their mortgage payments, to their ongoing activities to finalize the proposed joint Statement on Subprime Mortgage Lending, which addresses risk relating to certain adjustable mortgages of the kind, I believe, that you are referring to, Mr. Chairman.

Moreover, the Federal Reserve Board has initiated a review of the mortgage disclosures required under the Truth-in-Lending Act (TILA), as well as action at a recent public hearing to determine whether specific lending practices are unfair or deceptive and should thus be prohibited under its HOEPA authority.

I am going to be very interested as we go through this hearing and other hearings to get answers to these kinds of basic question as to:

1. What kind of market discipline needs to be in place and is there market discipline in place today that is helping to address the problem?

2. What type of regulatory regimes should be in place to avoid the abuses that we all want to avoid, while making sure that we still maintain a healthy and robust system of credit for homeownership in this country?

3. Do we need to have more legislative authority from Congress or do our regulatory agencies and housing markets have existing authority under existing law to take the actions necessary to assure that the mortgage abuse is avoided and eliminated?

Again, the question that I want to answer in the end is the one I began with, and that is, where is the right level, where should the pendulum end up as we try to adjust the system in such a way that we do not have to talk about the kind of stories that have been brought up in the hearing and that this Committee has held so far in which it appears clear to everyone that people were put into loans that were designed to fail from the outset, which were designed to result in foreclosure, and to yield profits upfront to some of those who were marketing the loans.

Some have said in other hearings that there is no long-term incentive in the market for that kind of practice and that the market itself will correct it. Others have said that for certain participants in the market there is indeed an incentive for those kinds of practices and that there needs to be a regulatory regime to assure that it does not continue.

It is the answers to those kinds of questions that I think are critical to achieve in this hearing, and I will be looking for answers to those kinds of questions from our witnesses.

I want to thank our witnesses for coming here today and also for your involvement in this important part of America. Homeownership is really a big part of the American dream, and we want to make sure that everyone in America has the availability of credit to get their hand on that rung of the American dream as best they can. We want to make sure that the rung, when they reach for it, is real and that the opportunities that they believe they are being offered are real and that they are not being moved into a situation which will in the end result in the kind of financial tragedies that will further deprive them of opportunities to achieve homeownership.

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