Helping Families Save Their Homes Act of 2009--Continued

Floor Speech

HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009--Continued -- (Senate - May 06, 2009)

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PREDATORY LENDING

Ms. KLOBUCHAR. Mr. President, I would like to thank Senator Dodd for his efforts to provide solutions to our neighborhoods and middle-class families to address the subprime and foreclosure crisis.

As the Nation struggles to deal with the fallout from subprime lending and the credit crunch, it is critical that families have access to safe, fair and affordable mortgages. Borrower protections, like those we have in Minnesota, should be national policy to help safeguard families across the country.

A decade ago, just 5 percent of mortgage loan originations were subprime--meaning that they were made to borrowers who would not qualify for regular mortgages. By 2005, 20 percent of new mortgages were subprime. This may have expanded access to home ownership, at least temporarily, for some people; but it also greatly increased the risk our system. In Minnesota, in 2000, there were 8,347 subprime mortgages issued. By 2005, it had increased more than fivefold to more than 47,000 subprime mortgages.

However, we now know that between 60 percent-65 percent of people who ended up with subprime mortgages actually qualified for traditional mortgages. We need to make sure this doesn't happen again.

That is why I have introduced the Homeowner Fairness Act, which is comprehensive housing reform legislation that proposes tough new national standards based on the successes of the Minnesota mortgage lending law passed in 2007.

The bill would put in place a number of key reforms. It would require all mortgage originators to verify a borrower's ability to repay a mortgage before giving loan approval. In addition, the bill would require mortgage brokers to have a minimum net worth of $500,000 while also subjecting them to fiduciary duties obligating them to act in the best interest of their clients. It further bans prepayment penalties and limits up-front fees to no more than 5 percent of the initial principal of the loan. Importantly, the bill prohibits ``steering,'' which is the act of approving a loan at a higher rate than that for which a borrower qualifies.

We need to make sure that abusive and exploitative mortgage practices come to an end. For far too long, subprime lenders have put the homes and home equity of Americans at unnecessary risk. These commons sense protections, modeled after Minnesota law, are essential to restoring our economy and preventing a future crisis in the housing market.

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