Dodd on mortgage crisis: No new laws needed

Guest posted by David Lightman at 2:41 pm CDT

Lawmakers, regulators, consumer groups and bankers all agreed Wednesday to let the marketplace fix the crisis in subprime lending, and avoid new legislation or government bailouts.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., hosted a 2½ "homeownership preservation summit" with 19 interested parties. After the closed door session, Dodd made his views clear on the role of Congress:

"I'm not overly anxious to legislate," he said. "We think there may be enough laws on the books."
Instead, he is turning to lenders as well as to Fannie Mae and Freddie Mac to help ease the problem, and he's making it clear to regulators he wants them to watch lenders more carefully.

An explosion of subprime loans - mortgages given to people with questionable credit histories - helped fuel the housing price boom two years ago. An estimated 15 percent to 20 percent of all mortgage loans are estimated to be subprime.

Now, members of Congress and regulators fear that as the cost of those mortgages rises, foreclosures will increase.

So those at the summit Wednesday explained how they are taking steps that would keep many people in their homes, while changing the terms of their loans. Fannie Mae and Freddie Mac officials promised Wednesday to work with borrowers, perhaps by rewriting many loans.

Richard Syron, Freddie Mac chairman and chief executive officer, talked about how "there are new products" that can be used, such as a 40-year mortgage where the interest rate is fixed for the first 10 years, and then it is either fixed or variable on the back end.

Officials from Freddie Mac and Fannie Mae stressed how they could change the criteria for subprime loans that interest them, thus prompting lenders to give homeowners the chance to refinance their mortgages and avoid foreclosure.

Dodd and Sen. Richard Shelby, R-Ala., the committee's top Republican, vowed to keep more pressure on regulators, whom Dodd has charged were lax in keeping an eye on lending practices. Dodd wants summit participants to give him progress reports in two weeks.

One idea they will not entertain is the idea of government bailouts, which is gaining some political traction. Sen. Charles Schumer, D-N.Y., chairman of Congress' Joint Economic Committee, is pushing the idea of "significant amounts" of money to help homeowners who may be facing foreclosure.
Forget it, said Shelby.

"I'm unalterably opposed," he said. "You can't save people from themselves in the marketplace."
Dodd also had little enthusiasm for the idea.

"I think the problem can be addressed in other ways," he said. "And I don't think the idea would be warmly received (in Congress)."

What was warmly received Wednesday was a sense that something needs to be done, and quickly, and when the summit ended, everyone seemed to agree progress was being made.

"Absolutely," said Bruce Dorpalen, director of housing counseling at ACORN Housing, a community group. "We talked not about institutional paper, but people's lives."