Dodd Says Fed Has Failed

ABC News’ Donna Hunter Reports: Taking the day off from the campaign trail, Senator and presidential contender Chris Dodd, D-Conn., met with Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson Tuesday to discuss the recent fluctuations and volatility in the mortgage markets.  The Senator urged Chairman Bernanke and Secretary Paulson to use "all the tools at their disposal to keep our markets working and to stop the credit crisis from spreading across the economy."  He also added that in his opinion,"the Feds failed their responsibility as a cop on the beat." 

Over past months Dodd, Chairman of the Banking Committee, joined by other legislators, has encouraged the Fed to take action to relieve the impact of the subprime mortgage crisis that has directly contributed to the markets’ instability.  The crisis has also left in its trail millions of homeowners facing foreclosure due to unaffordable subprime loans as well as home buyers unable to get mortgages. 

In an article by the Associated Press, Dodd said Freddie Mac and Fannie Mae, government-sponsored entities that buy mortgages, need to make more money available for loans.

"We need to be doing what we can through these lending institutions to provide relief to people who are going to lose their homes," said Dodd.

He has also asked President Bush to lift the portfolio caps on both Freddie Mac and Fannie Mae, but that request has been greeted with reluctance by both President Bush and Treasury Secretary Paulson.  Dodd says Paulson "has expressed his views on the subject matter and has indicated they’re not likely to move in that direction, but I’m going to continue urging them to do so."

While campaigning on Monday in Iowa, Dodd voiced his strong disapproval of the Fed, sighting legislation passed through Congress in 1994, which gave federal regulators the power to oversee the mortgage industry.  He said since the passing of the legislation, enforcement of the bill has been slow in coming and negligent.

"It passed overwhelmingly and they did nothing for 13 years," Dodd said.  "The Fed staff has told me for three and a half years that they knew this problem was coming."

Dodd pledged that if the regulators fail to act, he will not hesitate to try to move legislation in this area.

"The Fed needs to act quickly to protect subprime borrowers from unaffordable and abusive loans with exploding payments, prepayment penalties, and unnecessary yield spread premiums."  Dodd expressed satisfaction by the Fed’s decision to lower the discount rate, but added more needs to be done.

The Senator is not the only Democratic candidate attacking this issue in the presidential arena.  During Sunday’s presidential debate on ABC News, several candidates voiced their concern.  Sen. Hillary Clinton, D- NY, said that assistance must go to consumers and not just the financial industry.  In the fall she plans on putting forth comprehensive lending reform legislation focusing on adding more regulations to brokers.  Democratic Governor Bill Richardson of New Mexico called the crisis “the Katrina of the mortgage lending industry," while Sen. Barack Obama, D- Ill., reintroduced a mortgage fraud bill.  John Edwards, a former Democratic senator of North Carolina, has put his support behind limiting predatory practice and improving underwriting standards.