[Congressional Record Volume 147, Number 100 (Wednesday, July 18, 2001)]
[Senate]
[Page S7882]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SARBANES (for himself, Ms. Mikulski, Mr. Bond, Mr. Reid, 
        Mr. Schumer, Mr. Corzine, and Mr. Durbin):
  S. 1195. A bill to amend the National Housing Act to clarify the 
authority of the Secretary of Housing and Urban Development to 
terminate mortgagee origination approval for poorly performing 
mortgagees; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. SARBANES. Mr. President, today Senator Mikulski, Senator Bond, 
and I, along with a number of our colleagues, are introducing, ``The 
Credit Watch Act of 2001,'' a bill that will authorize the Federal 
Housing Administration (FHA), to identify lenders who have excessively 
high early default and claim rates and consequently terminate their 
origination approval. This legislation is necessary to protect the FHA 
fund and take action against lenders who are contributing to the 
deterioration of our neighborhoods.
  A rash of FHA loan defaults have led to foreclosures and vacant 
properties in cities around the country. In Baltimore, the effects of 
high foreclosure rates are acute. In some neighborhoods, there are many 
vacant foreclosed homes within just a few block of each other. This can 
often be the beginning of a neighborhood's decline. The high volume of 
vacant properties creates a perception that both the property and the 
neighborhood are not highly valued. In turn, these neighborhoods 
deteriorate physically and often attract criminal activity.
  It's like a rotten apple in a barrel. The rundown appearance of one 
home spreads to the surrounding neighborhood. Stabilization and 
revitalization efforts are undermined by the presence of abandoned 
homes.
  The Department of Housing and Urban Development, HUD, community 
activists, and local law makers have come together to examine the loans 
being made in neighborhoods with high foreclosure rates.
  In Baltimore and other cities, these groups that careless lenders are 
offering the FHA insured loans to families who cannot afford to pay 
them back. This results in defaults and foreclosures. A foreclosed 
property can easily turn into an uninhabited home, which can either 
begin or continue a cycle of decline.
  In an effort to reduce the number of loans that end in foreclosure, 
the FHA developed several new oversight methods, one of which is 
``Credit Watch.''
  ``Credit Watch'' is an automated system that keeps track of the 
number of early foreclosures and claims of lenders in a particular 
area. This legislation authorizes the FHA to revoke the origination 
approval of lenders who have significantly higher rates of early 
defaults and claims than other lenders in the same area. The FHA is 
currently targeting lenders with default rates of 300 percent of the 
area average.
  Credit Watch has been an effective tool in tracking down bad lenders. 
Since HUD launched Credit Watch in May 1999, the Department has 
terminated the origination approval agreements of 77 lender branches. 
An additional 177 lender branches were placed on Credit Watch, warning, 
status.
  The legislation accounts for differing regional by ensuring that 
lenders are only compared to other making loans in the same community. 
It also provides a manner by which terminated lenders may appeal the 
decision of the FHA, if they believe that mitigating factors may 
justify higher default rates.
  When lenders make loans with no regard for the consumer or the health 
of the community, the FHA must be able to take action in a timely 
manner so that costly abuses of the FHA insurance fund can be stopped. 
Quick action not only protects the health of the Mutual Mortgage 
Insurance, MMI, fund, it protect neighborhoods from the detrimental 
effects of high vacancy rates and consumers from the pain of 
foreclosure and serious damage to their credit.
  Lenders that offer loans to individuals who cannot afford them should 
not be able to continue making those loans. It is a bad deal for 
taxpayers. It is a bad deal for neighborhoods. It is a bad deal for the 
families who take out the loan.
  Credit Watch is an useful and efficient way for the FHA to prevent 
these unfortunate foreclosures from happening. While we need to address 
the larger issue of predatory lending in our communities. ``Credit 
Watch'' is an obvious and immediate solution to one part of this 
problem.
                                 ______