Fed Faulted For Inaction On Mortgages

The expansion of the lending industry was part of a nationwide push for homeownership. President Bush made home buying a cornerstone of his "ownership society." Homeownership is at a record 69 percent.

Now the real estate boom is unraveling, with about $160 billion in mortgages falling into delinquency, federal regulators said at yesterday's hearing. They added that as many as 1 million homeowners will see higher rates on their adjustable loans over the next year.

Dodd said the Fed could have invoked the 1994 Home Ownership and Equity Protection Act, or HOEPA, which obligates the agency to stop unfair and deceptive lending practices by federally and state-regulated mortgage lenders.

This law "has never been utilized" by the Fed, Dodd contended.

The Fed writes the HOEPA regulations, which cover all lenders. But Fed officials said they have enforcement power over only the banks they regulate, not over state-licensed mortgage brokers and lenders.

Fed officials noted that they used their HOEPA authority twice in 2001 to prohibit two lending practices as "unfair and deceptive."

The committee also heard testimony from executives of lenders, including Countrywide Financial, the nation's largest originator of mortgages. They warned senators to be wary of writing new laws that would make it difficult for poor people to buy a home.

Dodd, in response, urged the executives to cut down on loans to borrowers who have little documentation to prove their income, and to more accurately evaluate how much debt people can afford.

Sen. Jack Reed (D-R.I.) questioned the executives about mortgage brokers who practice predatory lending -- pushing risky mortgages or refinancing on unsuspecting people and charging high closing fees.

Sitting next to these corporate executives was an elderly woman from Philadelphia and a music teacher from Minnesota who testified that they were victims of such scams and now cannot afford their mortgage payments.