[Congressional Record Volume 155, Number 63 (Tuesday, April 28, 2009)]
[Senate]
[Pages S4812-S4813]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MERKLEY:
  S. 911. A bill to amend the Truth in Lending Act to prohibit 
prepayment penalties, and for other purposes; to the Committee on 
Banking, Housing, and Urban Affairs.
  Mr. MERKLEY. Mr. President, I am introducing two pieces of 
legislation to address the very heart of our economic crisis--the 
housing market and the deceptive lending practices that have placed 
millions of homes at risk of foreclosure.
  In the last few years, millions of families were led into 
unsustainable home mortgages that pushed our country into an economic 
crisis unprecedented in our lifetimes. Instead of fulfilling a dream 
and contributing to a secure financial future, home mortgages have too 
often become a check for stripping wealth from working Americans.
  These two bills, the Transparency for Homeowners Act, S. 911, and the 
Promoting Mortgage Responsibility Act, S. 912, will put an end to 
deceptive and unfair mortgage practices that played a pivotal role in 
tricking American families to accept risky and unsustainable mortgages.
  Two key factors drew families into these mortgages that paved the way 
for this recession. First, steering payments.
  Steering payments were paid to brokers who enticed unsuspecting 
homeowners into deceptive and expensive mortgages. These secret bonus 
payments, often called yield spread premiums, turned home mortgages 
into a scam. A family would go to a mortgage broker to get advice in 
getting the best possible loan. The family would trust the broker to 
give advice because, quite frankly, they were paying the broker for 
that service. But what the borrower did not realize is that the broker 
would earn thousands of bonus dollars from the lender if the broker 
could convince the homeowner to take out a high-priced mortgage, such 
as one with an exploding interest rate, rather than a plain vanilla 30-
year fixed rate mortgage.
  The second factor is prepayment penalties. Prepayment penalties added 
insult to injury. After the homeowners realized they had been steered 
into an unsustainable mortgage, they soon discovered that a large 
prepayment penalty made it too costly for them to refinance to a more 
affordable loan. They were locked into that first destructive loan they 
did not fully understand when it was presented.
  This scam has had a tremendous impact. A study for the Wall Street 
Journal found that 61 percent of the subprime loans that originated in 
2006--that is 61 percent that originated in 2006--went to families who 
qualified for prime loans. More than half the borrowers who qualified 
for a prime loan ended up with a subprime loan because of these 
steering payments, putting millions of American families at risk. This 
is simply wrong--a publicly regulated process designed to create a 
relationship of trust between families and brokers but that leaves 
borrowers unaware of payments that take place, putting them into 
expensive and destructive mortgages.
  I call your attention to a New York Times editorial published on 
April 9 entitled ``Predatory Brokers.'' This editorial highlighted the 
problem. The Times concluded that:

       The first step must be to outlaw the kickbacks that lenders 
     pay brokers for steering clients into costlier loans.

  The editorial went on to say that:

       The most clearly unethical form of payment is the so-called 
     yield-spread premium.

  My friends, it is difficult to overstate the damage that has been 
done by these practices. An estimated 20,000 Oregon families will lose 
their homes to foreclosure in 2009. Nationwide, an estimated 2 million 
families will lose their homes this year. And the total of foreclosed 
families is predicted to reach 9 million by 2012.
  The legislative solutions I propose are very simple. The bills I am 
introducing today will ensure these practices do not again haunt the 
mortgage business in America. First, the Transparency For Homeowners 
Act ends the secret steering payments to lenders who lead homeowners 
into deceptive mortgages they cannot afford over the long term. Second, 
the Promoting Mortgage Responsibility Act prohibits

[[Page S4813]]

lenders from issuing costly financial penalties that prevent homeowners 
from refinancing into a more affordable loan.
  It is simple: an end to steering payments and an end to prepayment 
penalties. We should recognize that not only have these practices 
damaged the financial foundations for our families and millions of 
families at the retail level--turning the American dream of home 
ownership into an American nightmare--but these practices, which 
resulted in a huge surge in subprime lending, set the stage for the 
disaster that would come and is still unfolding on Wall Street and 
crippling economies around the world.
  My legislation will restore transparency to the mortgage lending 
process and help make home ownership a stable investment for families 
once again. The time has come for us to make sure that secret steering 
payments and paralyzing prepayment penalties never again haunt American 
families. Let us restore the American dream of home ownership.
                                 ______