[Congressional Record Volume 153, Number 67 (Wednesday, April 25, 2007)]
[Senate]
[Page S5106]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. OBAMA (for himself and Mr. Durbin):
  S. 1222. A bill to stop mortgage transactions which operate to 
promote fraud, risk, abuse, and under-development, and for other 
purposes; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. OBAMA. Mr. President, I rise today to reintroduce legislation to 
protect American consumers and homeowners from fraudulent and abusive 
mortgage lending practices. Mortgage fraud and abuse are growing 
problems in this country, problems that are depriving thousands of 
Americans of their dream of homeownership and often their hard-earned 
life savings. These problems are also costing the mortgage industry 
hundreds of millions of dollars each year and making the housing 
market, which is critical to our economy and the stability of our 
neighborhoods, more vulnerable.
  Although the data in this area is limited, mortgage fraud, which 
takes a variety of forms from inflated appraisals to the use of straw 
buyers, is a growing problem. In September of 2002, the FBI had 436 
mortgage fraud investigations. Currently, they have more than 1,036--an 
increase of 137 percent in less than 5 years. And of the 1,036 current 
cases, more than half have expected losses of more than $1 million. 
This is due largely to the housing boom which has driven up housing 
prices across the country. Nearly $2.37 trillion in mortgage loans were 
made during 2006, and the number may be even higher this year.
  But mortgage fraud is not just about dollars and statistics; it's 
about real people, real homes, and real lives. I first introduced this 
legislation last year after my hometown Chicago Tribune featured a 
series of articles about mortgage fraud in Illinois, which, along with 
Georgia, South Carolina, Florida, Missouri, Michigan, California, 
Nevada, Colorado and Utah, is among the FBI's top-ten mortgage fraud 
``hot spots.''
  The Tribune stories highlighted the plight of the good folks on May 
Street in Chicago, who saw a block's worth of homes go boarded up in 
the span of a just few years, as swindlers racked up hundreds of 
thousands of dollars in bad loans. The shells of houses were left 
behind as sad reminders of broken dreams. The Tribune highlighted the 
plight of 75-year-old Ruth Williams, who had to spend her personal 
funds to clear the title to her home after fraudsters secured $400,000 
in loans on three buildings they didn't own. A recent Tribune 
investigation turned up a 91-year-old woman defrauded into signing away 
her brick Chicago home, her sole asset, leaving her with nothing.
  Law enforcement, consumer groups and many in the mortgage industry 
are working extremely hard to combat fraud and abusive lending 
practices. I applaud their good work. Now, Congress should come to the 
table and do its part, and I'm pleased to introduce legislation today 
with my good friend Senator Durbin to address this important issue.
  The STOP FRAUD Act, which was first introduced in February 2006, is 
aimed at stopping mortgage transactions which operate to promote fraud, 
risk, abuse and underdevelopment. This year, the bill includes new 
provisions to protect the legal rights of borrowers with particularly 
risky subprime loans. The Act provides the first Federal definition of 
mortgage fraud and authorizes stiff criminal penalties against 
fraudulent actors. STOP FRAUD requires a wide range of mortgage 
professionals to report suspected fraudulent activity, and gives these 
same professionals safe harbor from liability when they report 
suspicious incidents. It also authorizes several grant programs to help 
State and local law enforcement fight fraud, provide the mortgage 
industry with updates on fraud trends, and further support the 
Departments of Treasury, Justice and Housing and Urban Development's 
fraud-fighting efforts.
  At a time when many homeowners are concerned about losing their home 
to foreclosure, and policymakers are worried about fraudulent, 
deceptive, and even just plain confusing lending practices that are 
roiling communities across the country, STOP FRAUD provides $25 million 
for housing counseling. The Department of Housing and Urban Development 
will contract with public or private organization to provide 
information, advice, counseling, and technical assistance to tenants, 
homeowners, and other consumers with respect to mortgage fraud and 
other activities that are likely to increase the risk of foreclosure.
  The Act also protects the legal rights of borrowers with risky, 
subprime loans. The greatest growth in the mortgage lending market is 
in subprime loans and some have estimated that more than 2 million 
homeowners with subprime mortgages are at risk of losing their homes. 
If a borrower receives a subprime mortgage with any one of several 
high-risk characteristics, the Act protects the rights of borrowers to 
challenge lending practices in foreclosure proceedings. The high-risk 
characteristics targeted by this Act include loans for which the 
borrower does not have the ability to repay at the maximum rate of 
interest, loans whose true long-term costs are not clearly disclosed to 
the borrower, stated-income and no-documentation loans, and loans with 
unreasonable prepayment penalties.
  Many States are actively trying to prevent a wave of expected 
foreclosures as housing prices stop rising while adjustable rates on 
many risk loans start rising. STOP FRAUD instructs the Government 
Accountability Office to evaluate the various State initiatives and 
report to Congress on lending practices and regulations related to 
mortgage fraud and deception, predatory lending, and homeownership 
preservation efforts.
  We cannot sit on the sidelines while increasing numbers of American 
families face the risk of losing their homes. There is excellent work 
being done by the Banking Committees in the House and Senate to tackle 
some of the thorniest and most challenging problems affecting the 
mortgage industry today. I look forward to working with my colleagues 
on comprehensive legislation to protect consumers and strengthen the 
housing market. The STOP FRAUD Act is just the beginning of an 
important Federal response. It is a tough, cost-effective, and balanced 
way to address the serious problem of mortgage fraud in our country and 
to provide additional protections for vulnerable borrowers. I urge my 
colleagues to join me in this important effort.
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