[Congressional Record Volume 153, Number 186 (Thursday, December 6, 2007)]
[Senate]
[Pages S14818-S14821]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        SUBPRIME MORTGAGE CRISIS

  Mr. SCHUMER. Mr. President, for months since the writing has been on 
the wall about the depth and magnitude of the subprime loan crisis, I 
have said time and time again that the Bush administration needs to 
take off its ideological handcuffs and act quickly to prevent millions 
of families from losing their homes. To the credit of Treasury 
Secretary Paulson, he seems to have loosened the administration's 
ideological handcuffs when it comes to the subprime mortgage crisis. 
But the burning question is whether this administration's plan, 
announced today, will go far enough in helping families in need, 
particularly when it is being announced at the exact same time 
Republicans in Congress are blocking critical commonsense help targeted 
toward these same borrowers. The President and Secretary Paulson say 
they are for FHA reform. Yet, a half hour ago, when Senator Reid asked 
for it to come to the floor, Republican colleagues blocked the bill. 
Has the White House stopped sending memos to the Republicans in the 
House and the Senate? What is going on here?
  While I agree with Secretary Paulson that wide-scale loan 
modifications are key in helping prevent the foreclosure

[[Page S14819]]

crisis, I am hearing that the plan being announced will be limited and 
targeted to only a limited set of borrowers who are at risk of losing 
their homes. I am hearing that one of my constituents, Mrs. Diaz from 
Staten Island, a hospital clerk I met as I talked about this issue back 
in New York, would not be helped by this plan. She and hundreds of 
thousands of other hard-working families seeking help are unlikely to 
qualify for the administration's plan. Over 230,000 Americans will have 
lost their homes due to foreclosure in the second half of this year 
alone. Just today, foreclosures reached an alltime high, as did the 
number of Americans who have fallen behind on their mortgage payments. 
Many of these are people who could afford their homes if not for the 
dubious subprime loans they received. We know none of those families 
will be helped in this plan.
  The bottom line with the administration's plan is there are too many 
families that may be left out and too little disclosure and 
transparency to ensure families that do qualify are being helped. If, 
as it has been reported, the plan will exclude subprimes with resets 
before January 1, 2008, then, according to Joint Economic Committee 
estimates, the plan will not cover 115,000 homeowners who will be 
foreclosed this quarter, let alone the additional 300,000 to 400,000 
whose subprime resets have taken place in the second half of this year. 
That is already close to half a million not being helped.
  It has also been reported that the payment freeze will cover only 
borrowers who are current in their payments. By definition, this will 
exclude many of the borrowers who most need help. They could be a 
couple of months in arrears. With help, they could solve their 
problems, work out some kind of refinancing. They are out.
  Frankly, I am also concerned about how this plan will be implemented. 
We have heard for the last 6 months from servicers that they have been 
modifying many troubled loans, but it turns out this is not exactly the 
case. What is going to change in their calculus now? Do we have 
confidence that investors won't line up to bring lawsuits and bring 
this process to a grinding halt before it even begins?
  Even if this plan is sound, the devil will be in the details of its 
implementation. For that reason, it is imperative that the 
administration gather and make public data from the mortgage servicers 
and lenders about what they are doing. We can't simply trust; we must 
trust but verify.
  For a solution to the subprime crisis to be successful, it must be 
transparent enough that all interested parties, including homeowners, 
investors, and policymakers, can verify that families are being helped. 
This is even more true when it comes to this administration which has 
continually told us that the subprime crisis is being contained. Some 
key information needs to be provided to the public, including the 
number of mortgages covered by the freeze, the number and types of 
modifications offered, the number of loans which are refinanced by 
FHASecure, and the number of loans foreclosed.
  We need to get this right now and make sure we do everything we can 
to make this rescue effort successful because if we wait 3 months, 6 
months, a year, the subprime crisis might overwhelm the economy and 
plunge us into recession. The Joint Economic Committee which I chair 
estimated that the spillover from the subprime foreclosure crisis could 
exceed $100 billion for homeowners, their neighbors, and the local tax 
base. On top of the subprime foreclosure losses, the continuing housing 
slump could be a massive blow to the economy. Economists such as Robert 
Shiller, who recently spoke before our committee, estimate that a 10-
percent decline in housing prices could lead to an overall $2.3 
trillion economic loss at a time when this country can least afford it. 
What does that mean for Mrs. Diaz and the millions of other families 
who have lost their homes on the brink of foreclosure or for their 
neighbors, because their neighbors are worrying too. When our homes are 
worth less than they were only a year ago, it is difficult to make 
mortgage payments each month. But when there isn't much in the bank 
account to pay high energy and health care bills, people get anxious. 
Instead of easing American anxiety, Republicans in this body and, for 
too many months, in this administration have ignored that anxiety. 
While we have been pushing to help American families, they have been 
nowhere to be found.
  There are things we can do beyond what Secretary Paulson has 
proposed. Senators Brown, Casey, and I, with critical help from Senator 
Murray, got $200 million in the appropriations bill for housing 
counseling organizations that can provide help. But instead of 
enthusiastically lining up behind this funding to help homeowners, the 
administration is threatening to veto this critical funding which could 
help loan modification efforts like those being pushed by Secretary 
Paulson. Instead of letting us pass an FHA reform bill that will allow 
this critical agency to help refinance troubled homeowners, as we 
speak, Senate Republicans are blocking progress on this proposal for 
ideological reasons.
  Yes, there are some, both in the White House and on the other side of 
the aisle, who believe in no Government involvement, let the chips fall 
where they may. That will hurt millions and millions of innocent 
people. That could lead to a recession. That is not what the American 
people want.
  I say to the President and to my colleagues on the other side of the 
aisle, take off your ideological handcuffs. Solve this problem that is 
afflicting America. The American people are not ideologues left or 
right. They want commonsense, practical solutions to solve this 
problem. The most frustrating aspect is that we know how to solve this 
problem in good part, but we are being blocked every step of the way.

  Again, Secretary Paulson and the President's announcement is a good 
first step. For the first time, they are taking off the ideological 
straitjacket and putting their toe in the water. But now they have to 
get into the pool. This is not a small problem. This is not something 
that takes minor and half-baked measures to solve. The American people 
are waiting. The homeowners on the brink of foreclosure are waiting. 
But so are their neighbors and so is every business owner in this 
economy.
  I urge my Republican colleagues to take off the blinders, stop 
blocking assistance to families who will lose their homes unless we 
act, allow us to pass commonsense measures, and convince this 
administration not to veto help for American homeowners during this 
holiday season.
  I yield the floor.
  The PRESIDING OFFICER. The assistant majority leader.
  Mr. DURBIN. Mr. President, I thank my colleague from New York, 
Senator Schumer, who has been a leader on this issue involving our 
Nation's crisis involving subprime mortgages. He has made constructive 
suggestions and was the author, with several colleagues, of an 
amendment to the Transportation bill that provided some $200 million 
for housing counselors--important advice and help for families facing 
foreclosure. I thank him for that leadership and for his remarks.
  There has been a lot of talk on both ends of Pennsylvania Avenue 
about the so-called national mortgage crisis. It is more than a 
mortgage crisis; it is an economic crisis. This is a crisis for 
everyone facing foreclosure, for their neighbors who watch the values 
of their homes decline, for local governments that will see revenues 
from property taxes diminish, and for every company struggling to 
finance a business with the banking industry that has contributed to 
these foreclosures. It is a crisis for all Americans. It is time this 
administration woke up to that reality.
  Over 2 million Americans are about to lose their homes to 
foreclosure, and 44.5 million Americans who live in their neighborhoods 
will watch the values of their homes diminish. A home for many families 
is their most important and valuable asset. Through no fault of their 
own, many people will see that asset losing value. It will lose value 
at their expense. They know it.
  We also know as well that homeowners living near foreclosed 
properties may see as much as $5,000 in the values of their home going 
down. I represent the State of Illinois. In the county of Cook, which 
is where you find the city of Chicago, we find some 29,000 foreclosures 
that are looming, and we estimate that some 2 million residences in 
Cook County will see their value go down as a result. That is

[[Page S14820]]

two-thirds of the residences in the county of Cook, one of the largest 
counties in America.
  I went to the West Side of Chicago recently with Alderman Bob 
Fioretti. We walked through a neighborhood where houses are boarded up 
because of foreclosure, where auction signs are out in the front 
yard. Bob told me that many of these same townhouses were selling for 
$300,000 or more just recently, and now they are on the auction block 
for around $100,000. What does that mean for the neighbor who spent 
$300,000 on his home, and now watches an auction of the next-door 
neighbor's old house, at $100,000? It is bad news. It is bad news for 
America.

  The U.S. Conference of Mayors projects that this crisis will result 
in 524,000 fewer jobs in America--that is pretty obvious from the 
housing industry alone--a drop in consumer spending, the loss of 
billions of dollars in tax revenue, and a slowdown of economic growth 
in America. This is not a small issue. It is a major issue when it 
comes to the American economy.
  As the chief economist of Moody's Economy.com said yesterday in a 
hearing I chaired:

       There is a substantial risk that the housing downturn and 
     surging foreclosures will result in a national economic 
     recession.

  If what we face is truly an economic crisis, the response from this 
administration has been totally inadequate. We have convened summits to 
get the industry to agree that we have a problem. We have suggested 
refinancing guidelines to ease industry bickering about how to help 
people refinance. We have pressured the industry to reach out to 
borrowers early and help them before the families get too deep in debt. 
They are all positive steps. But Moody's reports that for most loan 
servicers, only 1 percent of the loans whose interest rates jumped in 
the first half of this year have been modified to help the homeowners 
continue to pay for their homes. Nothing beyond that meager industry 
response has been done by this Government to deal with this reality. 
That is completely inadequate. Much more needs to be done, and it must 
be done now.
  Compare our situation to what happened in the late 1920s in America, 
when housing prices in another crisis dropped 30 percent. In 1932, 
Congress collaborated with the real estate industry to establish the 
Federal Home Loan Bank system, modeled after the Federal Reserve, to 
create a special lender of last resort for real estate. A year later, 
Congress modified bankruptcy law to allow insolvent wage earners to 
protect themselves from eviction. A year after that, Congress created 
the Federal Housing Administration which insured mortgages that were 
reasonable for the borrower by insisting on solid mortgage terms. In 
1938, Congress created Fannie Mae, eventually leading to huge 
securitization of mortgages. Compare that to what we are talking about 
now: jawboning, some conversations, saying let's hope major parts of 
the industry decide they want to cooperate. That is not leadership. 
That is begging.
  This list of Government actions taken 75 years ago highlights how 
little we have done to deal with this current economic crisis. Let me 
tell my colleagues what we proposed in this Democratic Congress: a bill 
by Senator Dodd, chairman of the Senate Banking Committee, to reform 
the Federal Housing Administration and make loans available to families 
who desperately need them; a bill by Senator Schumer, chairman of the 
Joint Economic Committee, allowing Fannie Mae and Freddie Mac to 
purchase more loans and provide more liquidity in the market; a bill I 
have introduced, allowing mortgages on primary residences to be 
modified in bankruptcy court as a last resort so that families don't 
lose their homes.
  FHA. Fannie Mae. Bankruptcy. The Congresses in the late 1920s and the 
early 1930s understood the magnitude of the challenge and they acted. 
As for the Congress of this year, some of us get it, but unfortunately, 
our efforts to pass this legislation have in many instances been 
stopped by the Republican minority. That is unfortunate. It is a 
pattern that has emerged in this Congress. The floor of the Senate has 
been virtually empty this week. We haven't seen Senators come to the 
floor proposing important legislation to deal with America's economic 
crisis and to take seriously the economic challenges facing families. 
No. Once in a while, a Republican Senator comes to the floor to try to 
stop the business of the Senate. Under the arcane Senate rules, they 
can do it, and they have done it.
  We tried to bring up the alternative minimum tax. It is a tax which 
is creeping forward and enveloping more and more taxpayers every year. 
Some 19 million Americans will be hit by this tax, which was never the 
intention when it was created. We wanted to bring a bill to the floor 
this morning, a bill to change this and protect those taxpayers. The 
vote on the bill was 47 to 47. Not one single Republican Senator voted 
to stop the alternative minimum tax from hitting 19 million Americans. 
Not one would cross the aisle. Why? There is no reason. No reason was 
given, other than the fact that time and time again, the Republican 
minority wants to stop the business of the Senate, whether it is a tax 
that needs to be reformed or a mortgage crisis that needs to be 
addressed. Time and time again, the Republicans are using yesterday's 
tactics of obstruction, yesterday's tactics of creating obstacles, when 
America wants bipartisan cooperation and compromise. That is why we are 
here.
  The Democrats have a scant majority--51 to 49. Under the Senate 
rules, there is not a lot we can do. It takes 60 votes for important 
decisions. The Republicans know it, and they are determined to stop any 
progress when it comes to solving America's problems. We want change. 
We want to move forward. They are stuck in the past--yesterday's party 
using yesterday's tactics. The American people are watching.
  Well, let me say that this administration has come forward with a 
plan dealing with the mortgage issue. It is short-term relief to deal 
with exploding interest rates for some families. It is good, but not 
good enough. From the details we received thus far, it has been 
reported that only 12 percent of subprime borrowers--about 240,000 
homeowners--will be eligible for this help. That is unfortunate. Twelve 
percent. When we have over 2 million--maybe 3 million--Americans facing 
foreclosure, we are going to only help one out of eight. That is it? 
That is as good as it can get? I don't accept it. Even fewer may be 
helped, we may find out eventually. After jumping through all the 
hoops, we may find that it may be a 10-percent solution for some. Not 
good enough.

  One of the millions of people who will still lose their home even if 
the Bush plan is adopted is Nettie McGee, who I met a couple of days 
ago. What a great lady. Nettie McGee is 73 years old. She lives on the 
south side of Chicago. She worked real hard during her life in a 
picture frame factory. She retired, and at the age of 65 her dream came 
true. For the first time in her life, Nettie McGee was able to buy a 
home. She is so proud of it. She talks about that home. She came to us 
yesterday in a hearing and told us what it meant to finally have her 
dream come true. Well, she ran into a problem. It turned out her 
backyard wasn't on the same tax bill as her home. She got notice in 
2005 that the taxes hadn't been paid on the backyard because they were 
being sent somewhere else. She didn't know it. She was $5,000 in debt 
to pay her property taxes. This poor lady didn't have it. She was 
living on Social Security. She saw an ad on TV--we see them all the 
time--you can get a mortgage; you can refinance. She called the number.
  The next thing you know, the next day up pops a fellow who says: Oh, 
we can answer all your prayers. We are going to provide you $5,000, and 
we are going to refinance your house. Well, Ms. McGee said she was 
invited to a closing. Think of how fast this was moving. The following 
week she went to a closing. She said that in less than 15 minutes they 
shoved 40 pages in front of her and kept turning the pages and said, 
keep signing, keep signing, keep signing, and she did. She walked out 
the door with the money she needed to pay off her taxes. She felt 
pretty good about it. She went home and started making her payments. 
Everything was fine until 2 months ago when they called her and said: 
Incidentally, Ms. McGee, those papers you signed mean you have an 
adjustable rate mortgage now. It is not a fixed rate mortgage. Instead 
of paying some 7

[[Page S14821]]

percent, you are going to pay 10 percent in interest. That meant that 
her monthly payments went up $200 a month. A Member of Congress may not 
miss $200 a month, but Ms. McGee will. The monthly payment which she is 
now required to make will take all of the money that is sent to her in 
her Social Security check. She is about to lose that home. After 10 
years of living her dream, she is about to lose it. She is one of the 
victims we are talking about, because of the resetting of an adjustable 
rate mortgage.
  One would hope Ms. McGee is the kind of person to be helped by the 
administration's suggestion on mortgages, but sadly, she is not. She 
wouldn't qualify, and that is sad. It tells you that this is a safety 
net that has too big a hole in it and that a lot of poor people are 
going to fall through.
  I have a plan that will go further than the Bush administration plan. 
I want to change the bankruptcy laws for about a fourth of the people 
facing foreclosure who end up in bankruptcy court. I want to give them 
a chance. If they have enough income, the court can order changing the 
terms of the mortgage, the interest rate and the principal, no lower 
than the fair market value of the property as of the time of the 
bankruptcy, and by renegotiating the terms, the people may be able to 
stay in their homes.
  What happens if the proposal I have made doesn't become law? Well, 
there will be a real foreclosure. They will have to leave their homes. 
Their homes will be sold on the market. For the lender, what does it 
mean when you go through foreclosure? It means $50,000 in debts from 
the foreclosure process. It also means facing the possibility--the very 
real possibility--that you are going to lose 20 to 30 percent of the 
value of the loan in a foreclosure sale.
  That is the reality, and I hope we can change it. I hope that what we 
call a mortgage crisis today will become a crisis we respond to as a 
nation on a bipartisan basis: Congress and the President helping the 
American people realize their American dreams, live in their homes, and 
not see the value of their neighborhoods diminish.
  Mr. President, I see Senator Brownback is here. I yield the floor.
  The PRESIDING OFFICER. The Senator from Kansas is recognized.
  Mr. BROWNBACK. Mr. President, I ask unanimous consent to speak as in 
morning business.
  The PRESIDING OFFICER. We are in morning business. Without objection, 
it is so ordered.

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