Transcripts

Sub-prime Lending Has Become A Capitol Concern

JEFF YASTINE: Sub-prime lending is also getting attention on Capitol Hill where Congress is trying to figure out how to prevent future problems. One looming question is how to help people who might be in danger of losing their homes or might be shut out of the housing market by tighter lending standards. Darren Gersh reports.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: North Carolina Congressman Brad Miller wants to give every borrower in the United States tougher protections against predatory lending. But Miller says, it is important for Congress to strike a balance.

REP. BRAD MILLER (D) NORTH CAROLINA: There's a balance between protecting consumers against predators, against mortgage lenders who want to take advantage and betray their trust and take as much out of a loan as they possibly can, and making sure we don't protect credit to death, that it is still possible to lend money with a reasonable profit.

GERSH: Miller's legislation would target what he calls some of the worst sub-prime abuses. It would limit up-front fees, set national suitability rules to make sure borrowers get the right loan and define lending standards to require borrowers are able to repay not just a teaser rate, but also the interest rate that might kick in a few years later. Jonathan Jacoby is associate director for economics at the Center for American Progress. A new report from the center suggests Congress go further, targeting extra assistance to states hit hard by predatory lending. Jacoby also wants to see temporary loans for sub-prime borrowers about to lose their homes.

JONATHAN JACOBY, ASSOCIATE DIR., CENTER FOR AMERICAN PROGRESS: These are programs that will help those that are facing foreclosure to be able to either make payments or to lower their interest rates so they will be able to cover their payments to tide them over until they are back on firmer financial ground. These programs also do person-to-person counseling for people that are facing the psychological burden of foreclosure.

GERSH: The sub-prime crisis is adding new urgency to efforts to expand affordable housing programs. At this hearing, lawmakers are considering a bill to carve out a $500 million pool of affordable housing money with contributions from mortgage giants Fannie Mae and Freddie Mac. But banking expert Alex Pollock says markets are already adjusting to the sub-prime crisis by tightening credit and he says it's a good idea to reintroduce the housing market to the idea of personal savings.

ALEX POLLOCK, FINANCIAL POLICY ANALYST, AMERICAN ENTERPRISE INSTITUTE: Major lenders historically, up to the 1980s in this country for mortgage loans, were savings and loans -- savings and loans. And over the last, let's say decade or two, it seems like we forgot about the savings part and all the emphasis has been on the loan part.

GERSH: By the summer, Congress is expected to take up a predatory lending bill. House Democrats are also considering ways to raise money that could be used to help more moderate-income borrowers avoid sub-prime loans altogether. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.