U.S. Senator Amy Klobuchar joined forces Wednesday with the Chairman of the Senate Banking Committee to address the home mortgage crisis.
She sponsored legislation that she says would stop abuses in the sub-prime lending industry, help stabilize the battered mortgage market, and protect the homes and home equity of American families.
“Maintaining access to affordable credit is important,” Klobuchar said. “But too often in recent years, these sub-prime lenders have merely put the homes and home equity of Americans at unnecessary risk.”
Klobuchar is an original co-sponsor of the “Homeownership Preservation and Protection Act of 2007,’’ which was introduced Wednesday with Senator Christopher Dodd (D-CT), and is expected to be the Senate’s major reform of subprime mortgage lending practices.
The legislation is supported by organizations such as the National Association for the Advancement of Colored People (NAACP), the American Association of Retired Persons (AARP), and the Center for Responsible Lending, among others.
The bill would set new standards to make sure that subprime loans are affordable and fair, establish rules to discourage mortgage “flipping,” and provide adequate remedies to make sure lenders follow these standards, according to Klobuchar. It would also create a transparent set of rules for the mortgage industry so that investment capital can safely return to the troubled lending market, she added.
In sponsoring the legislation, Klobuchar emphasized that only about 10 percent of subprime mortgages in the past several years have been made to first-time home buyers; a majority of sub-prime loans are refinances.
In other words, this market has not been primarily about creating a new set of homeowners.
Senator Dodd commented, “By putting an end to abusive practices such as prepayment penalties and ‘steering’ homebuyers to more costly loans, and by providing for strong enforcement to ensure that these new protections are followed, this bill will help protect present and future homeowners from the plague of predatory lending.”
More than 2 million homeowners face foreclosure, at a loss of more than $160 billion in home equity, according to the Senate Banking Committee.
The U.S. Conference of Mayors recently reported that they expect a decline of $1.2 trillion in property values in 2008 because of the crisis.
Minnesota has been hit particularly hard with foreclosures in the sub-prime market. In the second quarter of this year, nearly 8.6 percent of sub-prime mortgages in Minnesota were in foreclosure – that was the fourth highest rate in the country.