Lawmakers, FDIC seek predatory lending crackdown

By Kevin Drawbaugh

WASHINGTON (Reuters) - A top U.S. bank regulator and lawmakers in Congress from both parties called for a national crackdown on predatory lending, a main cause of the crisis in the subprime mortgage market.

"The time has come for national anti-predatory lending standards applicable to all mortgage lenders," Federal Deposit Insurance Corp. Chairman Sheila Bair told a House of Representatives subcommittee in a hearing on Tuesday.

Bair said Congress could require that mortgage lenders must take into account a borrower's ability to repay a loan at its true cost, not based only on initial, low payments, while also moving against confusing and misleading mortgage marketing.

She also suggested possible restrictions on loan flipping, prepayment penalties, escrow of taxes and insurance and the fiduciary obligations of mortgage brokers.

Alabama's Spencer Bachus, senior Republican on the House Financial Services Committee, of which the subcommittee is a part, said: "We still need ... some legislation addressing mortgage brokers ... some type of national standard."

"We are facing, by all accounts, a tsunami of defaults and foreclosures," New York Democratic Rep. Carolyn Maloney, who chaired the hearing, said, citing estimates that 2.2 million subprime borrowers could lose their homes.

Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said earlier this month he wants to pass a bill by the end of the year to curtail predatory lending. Connecticut Democratic Sen. Christopher Dodd is also planning to introduce anti-predatory lending legislation.

Others appearing before the subcommittee were less definite on where they stand. A Federal Reserve staffer warned against over-reaction to problems that "need to be addressed in a way that preserves incentives for responsible subprime lenders."