Helping Families Save Their Homes Act Of 2009 - Continued

Floor Speech

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Mr. MERKLEY. Mr. President, tonight I rise to speak on the Dodd-Shelby legislation and specifically on my amendment, No. 1015, which is at the desk.

First, I commend my chairman, the distinguished Senator from Connecticut, for his work on this legislation. This legislation will take important steps in addressing the very heart of our economic crisis, the housing market. But we can do more.

Tonight I rise to offer an amendment that will put an end to the deceptive and unfair mortgage practices that played a pivotal role in steering American families into accepting risky and unsustainable mortgages. As I have discussed before, two key factors drew families into unsustainable mortgages and paved the way for this recession. First, steering payments were paid to brokers who enticed unsuspecting borrowers into deceptive and expensive mortgages. These secret bonus payments, called yield spread premiums, turned home mortgages into a scam.

A family would go to a mortgage broker for advice in getting the best possible loan. The family would trust the broker to give good advice because, quite frankly, they were paying the broker for that advice. But what the borrower did not realize was that the broker would earn thousands of bonus dollars from the lender if the broker could convince the homeowner to take out a high-priced mortgage such as one with an exploding interest rate rather than a plain vanilla 30-year fixed-rate mortgage.

Prepayment penalties added insult to injury. After the homeowner realized he or she had been steered into an unsustainable mortgage, the homeowner soon discovered that a large prepayment penalty made it too costly for them to refinance into a lower cost loan. The homeowner was locked into a destructive mortgage. This scam had tremendous impact.

A study for the Wall Street Journal found that 61 percent of the subprime loans originated in 2006 went to families who qualified for prime loans, meaning that millions of American families were placed at risk. This is simply wrong--a publicly regulated process designed to create a relationship of trust between families and brokers but that leaves borrowers unaware of payments that place them in expensive and destructive mortgages.

I call my colleagues' attention to a New York Times editorial published on April 10 entitled ``Predatory Brokers,'' which highlighted this problem. The editorial pointed out a study by the Center for Responsible Lending that found that subprime borrowers who used a broker actually fared worse than those who went directly to lenders. Those borrowers paid $17,000 to $43,000 more for every $100,000 they borrowed. That is outrageous.

The Times concluded:

The first step must be to outlaw the kickbacks that lenders pay brokers for steering clients into costlier loans.

The editorial went on:

The most clearly unethical form of payment is the so-called yield-spread premium.

It is difficult to overestimate the damage that has been done by these expensive loans and secret steering payments. An estimated 20,000 Oregon families will lose their homes to foreclosure in 2009. Nationwide, an estimated 2 million families will lose their homes this year, and the total of foreclosed families is predicted to reach 9 million by 2012.

These practices didn't only hurt families on Main Street, they were also the prime enablers for the propagation of destructive subprime collateralized debt obligations, or CDOs, that have now brought Wall Street to its knees. Had these procedures been banned--steering payments, prepayment penalties--Wall Street would not have been able to engineer the tremendous bubble on the backs of unsuspecting homeowners and, accordingly, would not have had the billions in write-downs that caused this credit crisis and sent our economy into a terrible recession.

The problem is simple and the solution is simple. The costs of doing nothing are tremendous both for homeowners and for the financial system. By banning steering payments and prepayment penalties, this amendment will restore transparency to the mortgage lending process and help make home ownership a stable investment for families once again.

The time has come for us to make sure that secret steering payments and paralyzing prepayment penalties never again haunt American families.

I yield the floor.

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Mr. MERKLEY. Mr. President, I deeply respect and appreciate the fact that the chairman has done so much to bring public attention to these important issues over the past several years. I would be delighted and honored to have the opportunity to assist with hearings as described on predatory lending and to refresh this conversation about how we, as a Congress, can reach out and assist working Americans to make sure that in the future they will not find that the dream of home ownership is turned into a nightmare, as it has been through steering payments, through prepayment penalties for so many in the near past. I would be deeply honored.

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