WASHINGTON — Sen. Charles Schumer blamed Countrywide Financial Corp. for helping to driving up home foreclosure rates and said it should stop steering borrowers into risky mortgages.
At a press conference Wednesday, the New York Democrat said Countrywide put borrowers at greater risk of foreclosure by systematically paying brokers higher commissions to place consumers into subprime loans when they would have qualified for prime loans. Related Links
“When corporate profits are earned as a direct result of misleading individuals into purchasing high-risk, high-cost loan products that have a high likelihood of resulting in the loss of their homes something is very very wrong,” he said. “Recent reports of subprime business practices of our nation’s largest lender — Countrywide — paint a picture frankly of greed motivating widespread irresponsible lending that have contributed to what could have been the largest home foreclosure crisis in our country.”
Sen. Schumer asked the company to cease its “abusive” practices by helping borrowers refinance into lower-rate loans and waiving prepayment penalties, and said it should stop charging above market fees for tax obligations and credit checks.
A spokeswoman for Countrywide released a statement late Wednesday taking issue with the New York Times story, which it said “contained numerous inaccuracies and ‘facts’ taken out of context to place Countrywide in the worst possible light.”
The statement said the company has reached out to Sen. Schumer to reassure him that Countrywide’s business practices were not accurately portrayed. It said, for example, that its practices were designed to prohibit steering borrowers who qualify for prime loans into subprime products. The company said that its loan officers also do not receive higher commissions and that it has taken “extraordinary efforts” to assist borrowers.
But Sen. Schumer’s concerns were seconded by Senate Banking Committee Chairman Chris Dodd, D-Conn., who criticized Countrywide for including prepayment penalties on subprime mortgages and allowing brokers to use yield spread premiums.
“There is no doubt that Countrywide should stop charging prepayment penalties on its subprime mortgages, and end the practice of rewarding brokers with payments called ‘yield spread premiums,’ for steering borrowers into more costly loans,” Sen. Dodd said in a press release.
But he said the problems go well beyond Countrywide, and once again urged the Fed to write a rule that would curtail the use of prepayment penalties for all mortgage companies. “It is not enough for Countrywide alone to reform their business practices. Every lender must be held to the same standards,” Sen. Dodd said.
Sen. Schumer also used his press conference to renew his call on the Bush administration and regulators to endorse a public-private partnership that would give money to nonprofits to help troubled borrowers rework their loans. “We need more leadership from the regulators and the administration to help fill the void in terms of who is going to come in and help the homeowners refinance,” he said.
He said that focusing on the credit crunch without fixing problems in the mortgage market is a foolhardy approach and reiterated his call for legislative solutions. “There is a fundamental problem and that is that the mortgage crisis is going to get worse,” he said.
He repeated his push for Sen. Dodd to hold a vote on a mortgage reform bill Sen. Schumer is cosponsoring with Democrats Sherrod Brown of Ohio and Robert Casey of Pennsylvania. The bill would, among other things, regulate brokers by holding lenders accountable for their actions. “We believe that we have to do something in terms of predatory lending and do it soon,” Sen. Schumer said. “Sen. Dodd hasn’t committed to that but he’s entertained that notion and we hope to persuade him to do it quickly.”
Sen. Schumer said the Senate Judiciary Committee, of which he is a member, is considering changing the tax treatment for loans that have been reworked and to allow more flexibility for borrowers to restructure a primary mortgage in bankruptcy.
Sen. Schumer once again called for the Bush administration to lift caps on the mortgage portfolios of Fannie Mae and Freddie Mac, but released a letter from Fed Chairman Ben Bernanke saying he opposed any such move. In the letter, dated Aug. 27, the Fed chief said the government-sponsored enterprises could make a difference by selling some of the loans they currently hold in portfolio to make way for newer mortgages.
“The current caps on GSE portfolios — which were imposed for safety and soundness reasons — need not be lifted to allow them to accommodate new borrowers,” he wrote. “Currently, the GSE portfolios include substantial holdings of GSE-guaranteed mortgage products, which are easily placed in the private secondary market even under current conditions. Thus, the GSEs could readily sell those securities to make space for new mortgages if they wished to do so.”
