Apr 03 2008
MRS. FEINSTEIN: Madame President, I rise in support of an amendment called the SAFE Mortgage Licensing Act, licensing being the dispositive word. I'm very proud to work with Senator Martinez of Florida. This amendment is co-sponsored by Senators Boxer, Obama, Dole, Durbin, Salazar, and Clinton.
One of the things, Madam President, that I didn't realize is how big scams are a part of the subprime market. I remember picking up a USA Today newspaper in January, and the headline read, ‘Housing Scams Rising, FBI says. 2007 Convictions More Than Double.’
And as we began to look at this, we found there was a very real problem. And the problem is that there is but a thin patchwork of state regulations. They vary. Some don’t have any. Some are pretty good, some are not so good.
So we put together this bill, Senator Martinez and I, and I’m very proud to say that it is supported by the National Association of Mortgage Brokers, by the Conference of State Bank Supervisors, by the Mayor of Los Angeles, and by the National Association of Realtors.
And I’d like to read if I might the Realtors’ letter, because I think it's important to the discussion:
‘On behalf of over 1.3 million members of the National Association of Realtors, I want to share our views on the SAFE Mortgage Licensing Act offered by Senators Feinstein and Martinez. We believe this amendment will go far towards preventing another subprime market failure that would further erode confidence in the nation’s housing finance system.
While responsible subprime lenders have played an important role in helping millions of consumers achieve homeownership, abusive subprime lending has occurred much too often. As a result, roughly 2.2 million American households have been projected to lose their homes, and as much as $164 billion due to subprime mortgage foreclosures.
Many of the provisions of the amendment are consistent with the National Association of Realtors’ responsible lending principles. We believe these principles provide an appropriate base for this amendment.’
Thank you to the National Association of Realtors. We are very grateful for the support.
The fact is, mortgage fraud complaints have jumped more than 700 percent over the last five years, from 5,623 in 2002 to 46,717 last year. And mortgage fraud complaints in my state – California – Senator Boxer’s state and my state, have increased 400 percent over the last five years, from 1,043 in 2002 to 4,060 last year. All you have to do is take a look at the jump in these complaints and a jump in convictions to know that there are scams going on and that we need to stop them.
The best way to stop them is to license these brokers and lenders so that you prevent the 25-year-old scam artists -- and I don't pull this out of the air; this is a fact – who can come in, get on a telephone and tell lenders or tell an individual what they can do to refinance their house and do it all in a bogus manner.
These states are mortgage-fraud hot spots in the United States: Florida, California, New York, Utah, Georgia, Indiana, Ohio, and Michigan. These are mortgage-fraud hot spots because of the number of complaints and convictions of mortgage fraud coming from these states. So the time has come to do something about it.
Now, there are some people in this body that say, ‘Don't pass this bill today; put it in regular order, let it go to the committee.’ You let it go to the committee and it will be another year before this bill is before us, and I will bet any amount of money the mortgage frauds will continue. Because all the conditions are ripe for it.
The only way to handle it is to pass this bill, which sets into motion some minimum national standards and allows the states to carry out these minimum standards and add to it anything the states might want. And, as I say, the 1.3 million-member National Association of Realtors is in support of this amendment. And the group that regulates them is in support of the amendment as well.
Today, subprime mortgages are 30 percent of all the mortgages in the largest state in the Union – 30 percent of all mortgages are subprime in California. And this is a community, because they're mainly working class, not necessarily college graduates, that they're eager pawns for bad actors in the mortgage and lending business.
Now, having said that, not all brokers are bad actors. Many of them are honorable professionals. And the fact of the matter is, this is a profession. This is what you do as a mortgage broker, as a lender. You should have standards. You should have to pass a test. You should have to get a license. And you should have to renew that license periodically. How else can you be able to go out, get on a phone call, call people and say, ‘Look, I can refinance your house at 4 percent,’ and you bring in the eager homeowner and then the reality is something very different.
These bad actors must be stopped. And there's only one way to stop them. And that's minimum federal standards, allow the states -- in my state it would involve the Department of Corporations -- that sets up the licenses, that sets up the training, and individuals would go through the training, they would have their background check, they would get a license, and the license would go up for renewal annually.
Some object to it. My goodness, attorneys have to renew their licenses, why doesn’t someone that puts out mortgages -- which is very often everything that an individual owns. Why isn’t it important for them to have a license and have that license renewed?
Once again, I’d like it tell you about this family, and I do so because I met them in Los Angeles last week. This is the Simmons family. Look at their house. It isn't a mansion. It's a one-story, well-kept stucco home with flowers planted, bushes trimmed. The gentleman, Mr. Simmons, was an employee of Northrop Grumman for more than 20 years, and his wife an employee as a grocery checker for 26 years. They have owned this home for 39 years.
Mr. Simmons has a stroke. They find they need cash. The received a cold call from somebody -- they wanted $500,000 to be able to get a loan, take this out and use it for medical expenses. And they were offered a $629,000 loan with $25,000 cash back, 4.5 percent interest, and monthly payments of $2,000. Now, they're not college graduates.
These are working people who did everything they could to buy a home, who kept that home up for 39 years in good condition, and who today are going to lose that home. And here's why: There was no cash back in what they were promised. The interest rate was 11.2 percent on this loan. The monthly payments were not $2,000, as they were told. It was $5,300.
When they had to make the first payment they called the broker and said, ‘You told us $2,000, why is it $5,300?’ And he said it was only for four months to draw down the interest rate. They said, ‘Well, I guess we can do it for four months.’ But it was for the length of the mortgage, and the broker walks off with a $20,000 fee.
Now, in my book, this is fraud.
Now, there are some who say that, well, people get the papers, let them read through them. You've bought a home, Mr. President. I’ve bought a home. I didn't read all the fine print on all of the documents. I depend on the word of the broker. And I believe most people do that. Now, I’m not a lawyer. I do have a college degree. What if I only had a high school degree? Or not even that? I work all my life, I don’t understand the fine print. This is why you have professionals representing you – to tell you the truth.
And there's a penalty – there should be if they do not tell you the truth. Buying a home should not be a scam. Refinancing a home should not be a scam. So, we went on the Internet. Let's see what companies advertising to employ brokers say. And here's one of them, here is the source. We accessed it on February 27, for brokers: ‘No experience, education, or exam is necessary.’ No experience, education or exam is necessary.
They go on to say to the company: ‘You can hire unlicensed sales agents to originate loans under your company license.’ I don’t think they should be able to do that. Because it is these people that pick up the phone and call the homeowner and offer that second mortgage.
And particularly in the subprime marketplace -- where many people have very little if any down payment -- this presents enormous difficulties. Consequently, we've got a real problem.
I hope this amendment passes today. Some people, perhaps, don't like this or that; it can be worked out in conference.
The legislation also creates a database so that I, Joe Doe, about to buy a house, can go into my computer, if I have one, and see that my mortgage broker is licensed, and know that he has been to school, know he has been informed of ethics, know that he doesn't have a felony background, and you can know that his license is renewed annually so that he is kept up-to-date on ethics and best practices.
This industry -- because real estate controls such a large proportion of most people's wealth -- their home; their home is their rock; everything flows from that homeownership -- and for most people buying a home is truly the American dream. Owning, having that equity, building that equity over the years, being able to finance the retirement from equity in a home when they choose to sell it, is really such a big, big deal. And to have bad actors, flimflam artists going around, sucking in people really makes me angry.So, I would hope that this body -- on behalf of Senator Martinez and I – would pass this legislation today.