January 31, 2008

As the nation experiences a dramatic economic slowdown and Congress considers economic stimulus packages to present to the President, Senator Chris Dodd (D-CT), Chairman of the Banking, Housing, and Urban Affairs Committee, held his first hearing of the year on the root cause of the current problems in the economy: the tumult in the mortgage markets and the rising number of home foreclosures.  Dodd focused the hearing on both short- and longer-term solutions to address the housing crisis, based on the premise that the mortgage meltdown is largely responsible for the current economic downturn. 

 

Dodd heard from two panels of witnesses representing the Administration, consumer advocacy groups, and both progressive and conservative think tanks. Ideas discussed included:

 

• Home Ownership Preservation Corporation: Based on a similar entity temporarily established during the Depression, this entity would capture the discount at which delinquent and near-delinquent loans are trading in the marketplace through a transparent, market-based process.  Lender and homeowner losses would be mitigated and homeowners would have a chance to re-finance into long-term affordable mortgages – all at little or no cost to taxpayers over the long run.
• Reform the Federal Housing Administration (FHA): Senator Dodd remains committed to enacting comprehensive FHA reform, which can give homeowners a chance to trade in “foreclosure loans” for stable, affordable 30-year fixed rate mortgages.  This bill passed this Committee on a 20 to 1 vote, and it passed the Senate by a vote of 93 to 1.
• Preserving our Neighborhoods and Communities:  To help local communities cope with the rising number of foreclosed and abandoned homes that litter their communities, Dodd supports an increase of $10 billion in funding for the Community Development Block Grant (CDBG) program so that states and localities may acquire, renovate, and resell these properties.

 

“The catalyst of our economic problems is the housing crisis,” said Dodd.  “And the face of this housing crisis is the historic increase in foreclosures.  Therefore, any serious effort to address our economic woes must include an effort to take on the causes of the foreclosure crisis.  This morning’s hearing is the beginning of that process.  Furthermore, a foreclosure does not affect just one home or family – it has consequences for the entire neighborhood. We must find ways to equip local governments with the tools they need to keep their communities clean and safe.” 

 

At several hearings last year, Dodd brought attention to the issues of predatory lending, the rising number of defaults on subprime loans, and the steadily increasing number of home foreclosures.  Warning of the potentially major economic consequences of turmoil in this market, Dodd brought together key stakeholders who later agreed on a set of principles to promote more responsible lending practices. Dodd introduced a comprehensive predatory lending bill in the fall, which will be the subject of further hearings this year.

 

Dodd also announced that he will hold a hearing next Thursday on Government-Sponsored Enterprises (GSEs).

 

-30-