WASHINGTON — The hallmark of Sen. Chris Dodd's chairmanship of the Senate Banking Committee has been a focus on the subprime mortgage fallout, but if the Connecticut Democrat is serious about eradicating lending practices he says precipitated the surge in foreclosures, he has a long haul ahead.
Recent interviews with several members of the Banking Committee revealed divergent and nascent views on what to include in a bill or whether legislation is needed at all. And even members and their staff who expressed interest in legislating said they are lacking engagement from the chairman.
On Sept. 5, while financial services lobbyists' attention was focused on a House Financial Services Committee hearing on the August credit crunch, Sen. Dodd — who had previously abstained from committing to subprime legislation — abruptly issued a press release detailing his plans for comprehensive mortgage reform legislation.
"Predatory lending needs to be stopped, which is why I intend to introduce legislation that will put an end to the practices that have forced thousands of Americans into foreclosure and put thousands more in danger of losing their homes," he said in the release.
The legislation, which Sen. Dodd's office said would be unveiled in the coming weeks, would ban a laundry list of subprime loan features, including prepayment penalties and yield spread premiums; tighten underwriting and documentation requirements; create good-faith and fair-dealing standards for brokers, lenders, servicers, and appraisers; and cover a larger class of loans under high-cost protections.
But in the month since the outline came out, little evidence has emerged to suggest that Sen. Dodd, who has a reputation as a dealmaker, is doing the bipartisan coalition-building that it would take to pass such legislation. Instead, he has been busy campaigning for president, which appears to rankle fellow lawmakers.
"Senator Dodd's preoccupation with some other things such as running for president has not put him here on a timely basis, and so … even though there was a comprehensive bill [summary] written, there's been no one pushing it and there's been not much coordination between staffs," Sen. Jim Bunning, R-Ky., a Senate Banking Committee member, said in a recent interview.
Though Republicans are seen as skeptical of a subprime mortgage bill, Sen. Bunning said he would favor legislation that forced lenders to act more responsibly. Overextending credit to subprime borrowers by qualifying them for loans on teaser rates should not be allowed and brokers should be regulated more stringently, he said.
Sen. Bunning said there are reasons other Republicans might also support legislation. But absent the subprime market turmoil manifesting into dramatic economic downturn, passing a mortgage reform bill in the Senate would be "really tough right now," unless Sen. Dodd throws his weight behind it, he said.
"Unless someone really gets ahold of it, like the chairman … I don't see it getting done," Sen. Bunning said.
Even some fellow Democrats appear irked by the slow pace. Sen. Robert Menendez of New Jersey has repeatedly called for action to stem the tide of foreclosures, and announced last week that he would introduce a package of bills on his own.
"We have always said to Sen. Dodd that we are happy to work in collaboration with him, but we may have some issues that we believe we might be ready to go on before he comes to those conclusions," Sen. Menendez said in a recent interview. "We're trying to think strategically what's best to do."
Though Sen. Menendez has not committed to Sen. Dodd's approach, he said the current market situation should be enough to encourage the committee to act on some kind of measure that tightens lending standards, "unless we want to relive what we're just in the midst of."
"The reality is … all of our friends in the marketplace say, 'Leave us alone,' " he said. "But we see what happens when we leave them alone: They don't act responsibly."
Sen. Jack Reed, D-R.I., a Banking Committee member who is sponsoring legislation aimed at bolstering foreclosure prevention counseling, said Sen. Dodd is focusing first on other issues, such as reauthorizing the expiring Terrorism Risk Insurance Act, before he gets around to the anti-predatory-lending bill.
"Sen. Dodd is taking his time," Sen. Reed said. "I would have to check back with him in order to get some sense of where he is now. … Certainly at the staff level, continued work goes into the discussion of what's the best approach on the subprime issue."
While Sen. Reed appears to agree with many of the concepts in Sen. Dodd's outline, he is open to one element that was not included: some limited assignee liability for loans that does not curtail credit availability.
"It has a certain appeal, because you require stockbrokers to value the suitability of investments to their clients," Sen. Reed said. "That has not shut off the ability of Americans to invest … so I think that's something that's probably appropriate to look at."
Sen. Daniel Akaka, D-Hawaii, acknowledged that significant work remains to be done in the committee to craft a workable bill. Though he favors many of the ideas Sen. Dodd outlined, he is wary of concerns raised by the banking industry and wants their input to be included.
"There is room to try to find something [bipartisan] but as to what it's going to be is the question," he said. "We are going to try to do it if we can, but it's a good possibility it might be next year."
Sen. Robert Casey, D-Pa., who is co-sponsoring legislation with fellow Senate Banking members Charles Schumer and Sherrod Brown that would rein in lender underwriting and require lenders to ensure that borrowers can repay loans, said that though he recognizes the committee has a lot on its agenda, he believes the subprime issue is critical.
"For the Banking Committee in the face of this crisis … to not have a response would be — to say it would be ill-advised would be an understatement," Sen. Casey said. "We've got to have a response."
He said he hopes the committee can come to a consensus quickly and vote on a bill this fall "to prevent this stuff from happening again."
"Dodd has been very responsive … and the fact that our committee has had hearings that deal with this I think speaks volumes about his concern about it, but we've got a lot more work to do," Sen. Casey said.
But while committee members all said there is much work to do on the issue, and hope it is done soon, some Senate aides say there are no serious negotiations taking place at this point — mostly because of Sen. Dodd's attention to his presidential campaign.
"He obviously has his presidential campaign and he's working on that, so there may be things that he does as chairman of the Senate Banking Committee that are good for the presidential campaign. … If it's one of those issues that he's ready to mark up, then his staff will come around and we'll have a meeting and we'll take this seriously and see what we can do to help out," said one aide.
Sen. Dodd's absenteeism was the butt of a joke at a recent Banking Committee hearing after three different members rotated into the chairman's seat in place of Sen. Dodd in one week.
"So many different senators have chaired meetings this week, I am wondering when it will be my turn," Sen. Bunning said.
Even the usually reticent Sen. Richard Shelby noted that the time Sen. Dodd is spending on the campaign trail puts a big question mark over what the committee will complete this year.
"He seems to be busy. … He's running for president," the Alabama Republican said. "That's very important, and if he's running for president it's hard for him to be here every day. … This is the first year of a two-year Congress, and there's plenty of time."
The most obvious stumbling block for Sen. Dodd's success, particularly with the heavily pro-consumer approach he has proposed, are Republicans who tilt in favor of free-market solutions.
Several Republicans in the committee expressed skepticism about the need for legislation and are expected to be tough for Sen. Dodd to persuade, but Sens. Shelby, Wayne Allard of Colorado, John Sununu of New Hampshire, and Mel Martinez of Florida said they have not been confronted with such a decision yet.
"We're not talking about any legislation at this point" in the committee, Sen. Allard said.
Given other priorities, Sen. Sununu said it was unlikely the topic would come up soon but that he would reserve judgment until it did. "It's a big issue. There are a lot of different approaches. … I want to look at the proposals and judge them on their merits," he said.
After passing a bill out of committee last month that is meant to provide a safer alternative to subprime lending by modernizing the Federal Housing Administration, Sen. Dodd told reporters that he is committed to fixing problems in the mortgage market.
Mitigating resistance and building support for a bill is a necessary component to the task at hand, he said. "That's the job of the chairman, to be persuasive and convincing," he said.
But he acknowledged he still had a lot of work to do.
"I need to talk to people," Sen. Dodd said. "There's a lot more that needs to be done here, and I'm determined to move forward. … I realize I have some work to do with some colleagues about whether or not we're going to do some of these things, and I realize that some of these provisions will be hard to sell, but I laid it out as a broad-based idea and want to pursue it very aggressively."
A spokesman for Sen. Dodd said "he continues to seek the input of committee members, other members of the Senate and all relevant stakeholders."
In Sen. Dodd's defense, many sources said he is in a tenuous position. Passing legislation in the Senate is notoriously difficult, particularly in a one-seat majority with both political parties increasingly bent on claiming control of the White House in 2008.
Furthermore, Sen. Dodd has been one of the most outspoken critics of the Federal Reserve Board. In hearings, press appearances, and speeches throughout the year he has chastised the central bank for failing to carry out its statutory mandate to write rules for all lenders under the 1994 Home Ownership and Equity Protection Act. In July the Fed announced it would put forth proposed lending rules under the statute by yearend.
Sen. Dodd also succeeded in reaching a deal with Sen. Shelby on a bill to modernize the FHA. Committee passage of the bill was not easy. Sen. Shelby blocked similar reform in the Senate last year and made plain during the committee vote this year that he remained skeptical about enlarging a government program that has battled fiscal and organizational problems.
Resolving those differences could provide Sen. Dodd guidance on how to proceed, sources said. Industry observers said Sen. Dodd's strategy will depend on whether his goal is to enact legislation or just use subprime mortgage reform as a political issue.
"If he wants a bill, then this is a starting point. Then he'll negotiate with Republicans to get some kind of consensus compromise," said Brian Gardner, a political analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. "If he doesn't want a bill and he just wants the issue, then I think he'll try and push this through the committee with few changes." It "won't get a lot of Republican support and dies on the Senate floor. That's an election-year tactic. Both sides have used it."
