March 27 (Bloomberg) — Congress should pass legislation setting a national anti-predatory lending standard that would apply to all mortgage lenders, a top U.S. bank regulator said.
A national standard would create a “more level competitive playing field” between federally regulated lenders and state- regulated mortgage brokers and lenders, Federal Deposit Insurance Corp. Chairman Sheila Bair said today at House Financial Services subcommittee hearing in Washington.
The legislation “should raise the bar by strengthening protections available to borrowers” and draw from existing federal mortgage guidelines, Bair said in testimony on predatory lending practices in the subprime mortgage market.
Lawmakers and bank regulators have said federal guidelines for non-traditional mortgages don’t reach state-regulated mortgage brokers and lenders who issue most subprime loans. While there is agreement on the need to address the problems, some regulators discount the need for a legislative fix.
Bank regulators appeared before Congress for the second time in a week to explain what they’re doing to protect subprime borrowers from rising foreclosures and loans they can’t afford to repay.
“Only about a quarter of the primary market in subprime loans is directly regulated by the federal bank regulators,” said Representative Carolyn Maloney, a New York Democrat and subcommittee chairman. About half “is regulated by a patchwork of state laws,” she said.
Curbing Lax Standards
Regulators testified on March 22 before the Senate Banking Committee, where senators chided them for not acting sooner. A Federal Reserve official conceded that the central bank could have stepped in earlier to prevent the subprime-mortgage meltdown by curbing lax lending standards.
The Fed, FDIC and other U.S. regulators on March 2 proposed subprime mortgage lending guidelines that would direct banks to offer clearer information to borrowers and ensure they can repay their loans.
Late payments on subprime loans reached a four-year high of 13.3 percent in the fourth quarter, while foreclosures on all home loans also reached record levels, the Washington-based Mortgage Bankers Association reported this month.
Subprime home loans are made to borrowers with poor credit records or high debt burdens.
More than two dozen mortgage companies have closed, cut or sold operations since the start of 2006, and rising defaults have prompted calls in Congress for legislation.
House Financial Services Committee Chairman Barney Frank has said he wants to pass legislation by the end of the year that would set a national standard for banks and mortgage brokers and keep borrowers from loans they can’t afford.
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