Senator Charles Schumer (D-N.Y.) said Wednesday that Countrywide Financial Corp. should stop paying brokers higher commissions for steering borrowers to adjustable rate subprime home loans.
"Startling reports have shed light on how Countrywide has led the industry in the practice of steering borrowers into risky subprime loans," Schumer, who is also chairman of the Senate Housing Subcommittee, said at a press conference Wednesday.
The Senator said his concern came from a report that said as of the end of June, one in four of the subprime loans issued by Countrywide are delinquent -- adding that nationally, about 40 percent of subprime loan holders near or currently in foreclosure could have qualified for prime-rate loans.
"Countrywide's lending business model prioritizes fees and commissions over the financial viability of the loans," he said.
Schumer continued by saying that while Calabasas-based lender said it would work to give potential borrowers the best loan, brokers were paid a premium to steer borrowers to high- interest, adjustable rate mortgages. After the mortgages are issued, they are often sold on the secondary market shortly after by Countrywide, leaving the homeowner and the investor in the mortgage liable for the debt.
"We have learned that Countrywide's promise to get borrowers the 'best possible loan' have been nothing more than a commitment to squeeze every dollar possible from homeowners."
Lawmakers have begun to pile on lenders due to lending practices that saw mortgage brokers and lenders push many well-qualified borrowers toward subprime loans that cost much more, resulting in soaring defaults and foreclosures as well as mounting skepticism on Wall Street as far as the worth of mortgages as investments.
Shares in Countrywide closed up for the first time this week, gaining 50 cents, or 2.6 percent, to $19.81 in trading Wednesday on the New York Stock Exchange.
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