Realtors know what it feels like to be on the Congressional hotseat. It's one of those professions that consumers complain about, largely because they know what brokers' charge for fees, unlike other professionals who keep their pay in the dark (particularly CEOs of publicly held companies.)

Now mortgage brokers are facing congressional investigation. The Banking, Housing, and Urban Affairs Committee, chaired by Christopher Dodd, D-Ct., held a hearing entitled "Preserving the American Dream: Predatory Lending Practices and Home Foreclosures," to look at sub-prime and predatory lending as the reasons foreclosures have risen so fast recently nationwide.

Senator Dodd's stated purpose for the hearing was to "create, sustain, preserve, and protect the American dream of home ownership, and to stop abusive practices in the housing market."

At the hearing, held on February 7, 2007, Senator Dodd heard from two homeowners who were targets of abusive business practices. Delores King, who has owned her home in Chicago for 36 years, may lose her home due to an exotic mortgage she was duped into signing by a telemarket mortgage broker, she says. North Carolina native Amy Womble faces a similar plight after a popup Internet advertisement led her to a broker that intentionally misrepresented her income in order to secure a home loan she could not afford, she testified.

The Committee also heard from the Rev. Jesse Jackson, president and founder of the RainbowPUSH Coalition; Hilary Shelton, executive director of the NAACP; and Jean Constantine-Davis, senior attorney for AARP who claim that predatory and sub-prime lenders target minorities, immigrants, the elderly, and other vulnerable individuals. Also testifying were banking officials such as Harry Dinham, president of the National Association of Mortgage Brokers; Martin Eakes, CEO, Self-Help Credit Union and the Center for Responsible Lending; and, Doug Duncan, chief economist, Mortgage Bankers Association.

Senator Dodd also considered testimony over adjustable rate products such as the 2/28 which comprise up to 80 percent of subprime loans today. The 2/28 is an adjustable rate mortgage that fixes payments for the first 24 months, and refinances at the two-year anniversary date. These loans are deceiving, says Dodd, as their monthly payments spike up after the initial quoted rate and often force individuals to refinance, generating fees that leave consumers even worse off.

Despite the booming economy, with better-paying jobs, more jobs, and strong consumer spending, defaults and foreclosures are rising. Dodd says it is time for Congress, the Administration, and the lending industry to face up to the fact that predatory and irresponsible lending practices are creating a crisis for millions of American homeowners.

"The system is out of balance," said Dodd. "There is a chain of responsibility that makes these abusive loans possible. I look forward to working with each link in that chain -- the brokers, the bankers, Wall Street, the regulators, the Congress, and the Administration -- to help restore this balance for the sake of the homeowners who are being victimized and to make sure that subprime credit can, once again, play a constructive role in the marketplace."

The Mortgage Bankers' Association was quick to fight back with a fact sheet claiming that 35 percent of homeowners own their homes outright, forty-seven percent are in fixed-rate loans, with only 18 percent of homeowners in adjustable rate products. Only six percent are sub-prime borrowers with adjustable rate loans, contradicts the MBA.

The MBA also claims:

• About one percent of mortgage loans are in foreclosure, which is well within historical norms, despite record home sales in the past five years.

• Three-fourths of loans that enter the foreclosure process do not wind up in foreclosure sales. Homeowners either cure the delinquency, work out a payment plan with the lender, or sell the home.

• The number one cause of delinquencies and foreclosures is job-related. There is no evidence that increased delinquency rates are due to hybrid ARMS or other nontraditional loan products such as interest-only or payment-option mortgages.

• Delinquency rates tend to peak 3-5 years after origination. With more than half of all outstanding loans less than three years old, it's reasonable that delinquency and foreclosure rates may rise.

• Stating the obvious, nonprime borrowers have always had a higher delinquency and foreclosure rates than prime borrowers. Nonprime borrowers also have a higher percentage of ARM loans.

• Lenders don't want to foreclose -- the costs are typically 30 to 50 percent of the outstanding loan balance, a lose-lose for the borrower and lender.

• Between $1.1 trillion and $1.5 trillion of ARMs could reset in 2007. Approximately $600 to $700 billion will refinance prior to or at reset, keeping those borrowers from facing a payment increase as their loans reset. The remaining $500 to $800 million will reset.

• Investors, rating agencies and lenders have already tightened underwriting standards because of the high volume of nontraditional loan products. The marketplace is working, says the MBA, and does not need to be regulated further.

• Interesting to note is that one of the proposed regulations to be imposed on lenders is "fiduciary duty."

Published: February 9, 2007

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.