Sen. Dodd readies response to mortgage crisis

DES MOINES, Iowa (Reuters) - A key Democratic lawmaker in an uphill bid for the White House pledged on Wednesday to offer a bill soon to tackle mortgage lending abuses amid a fast-spreading housing finance crisis.

Sen. Christopher Dodd said his bill would demand more disclosure and accountability by mortgage and bank officers, curb deceptive loan practices, and make sure there is a federal "cop on the beat" to guard against abuses.

"We'll announce it Monday or Tuesday," said Dodd, a Connecticut Democrat seeking his party's 2008 presidential nomination, in a Reuters interview after a campaign event.

Dodd aides later said the mortgage lending legislation would be formally introduced before mid-December.

The senator said he has talked with Republicans and hopes Congress will give final passage to the legislation and send it to President George W. Bush to sign into law early next year.

"It's got to happen. This problem is not going away," said the chairman of the pivotal Senate Banking Committee.

The House of Representatives overwhelmingly passed its own version of the legislation on November 15. It calls for licensing mortgage brokers and bank loan officers, bans certain predatory practices and bolsters borrowing protections.

The Bush administration has said it supports some parts of the House bill, opposes others and wants to work with Congress. It has not threatened a veto.

Dodd said his bill will be "a little tougher." Then he added, "It will be different. I don't want to say tougher."

He explained it will help make buyers aware of risky loans by demanding answers from brokers and bankers. "If you are a broker, who do you represent?" Dodd said in explaining his bill. "Are you with the borrower or the lender?"

The senator said he wants to address the fact that brokers get paid based on how large an interest rate they can convince the borrower to take.

CRITICAL OF FED

Dodd has led a charge among lawmakers critical of the Federal Reserve Board which, he says, could have done more to curb damaging mortgage loans. He has previously talked about a mortgage reform bill that would make the Fed responsible for shielding more borrowers from predatory lenders.

He has criticized oversight of a complex mortgage finance system that, he said, dilutes responsibility for bad loans.

"Nobody has any skin in this game. They are passing the buck all the way along the process," Dodd said.

"So by the time the person buys that mortgage-backed security, everyone has been paid along the chain and are done, except the borrower who is stuck with a damn bad deal."

Dodd has drawn criticism for not acting sooner, with some complaining his presidential campaign has slowed his congressional work. He rejected such talk and said the banking committee has been as active under him as past committees.

He had wanted to wait for the Federal Reserve Board to offer some possible remedies. "But it is not happening. I decided I had to get something out there."

Analysts say the housing finance crisis could cost banks and investors a much as $480 billion in coming years, while threatening many Americans with the loss of their homes.

In the recent housing bubble, banks and other lenders loosened standards for mortgage loans and extended real estate credit to many previously ineligible borrowers. Some loans were a poor fit for the borrowers and some were deceptive.

At the same time, Wall Street bundled billions of dollars' worth of home loans into securities that dispersed the risk of the underlying debt and diffused accountability for it.

Now many borrowers are in default and debt securities are going sour, with major banks reporting heavy losses.

BANKRUPTCY REFORM EYED

Separately, Dodd also said on Wednesday he plans to offer a bankruptcy reform bill to give new relief to individuals overwhelmed by mortgage, medical and student loan debt. One part of the bill would permit mortgages to be restructured in bankruptcy cases so that families can stay in their homes.

Running far behind in the polls, Dodd brushed off a survey early this month that found most people in his state believe he should drop out of the White House race.

Aides noted a recent poll found upward of 70 percent of Connecticut voters believe their five-term, 63-year-old senator should fight on in Iowa, which on January 3 begins a series of state-by-state battles to choose Democratic and Republican candidates for the November 2008 presidential election.

"I think I've got a shot," said Dodd, despite a recent survey that found him in seventh place with just 1 percent of the support of anticipated Iowa Democrat caucus goers.

"This is about expectations," Dodd said, predicting he will beat expectations and be seen as a viable candidate. "I offer mature leadership and a record of getting things done."

(Additional reporting by Kevin Drawbaugh and Patrick Rucker; Editing by Tim Dobbyn)