[Congressional Record Volume 154, Number 35 (Monday, March 3, 2008)]
[Senate]
[Pages S1443-S1446]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MORTGAGE CRISIS
Mr. DURBIN. Mr. President, last week we had a debate on the floor of
the Senate about three different measures. The frustration was that at
the end of the week, nothing happened. Now a lot of people who watch C-
SPAN and observe the Senate in session wonder if anything ever happens.
It seems as though there are a lot of gaps in activity here--so-called
quorum calls--that seem to go on and on and on, and then you switch to
another channel. Of course, if you are a Member of the Senate, there is
a frustration about this if you came here and believed part of your job
is to try to solve problems facing this country.
Early in the week, we tried to start a debate on the policy on the
war in Iraq. It was an important debate. It is one we have tried to
initiate many times over. Under the way the Senate rules are written,
the minority party--the Republican Party--can ``filibuster'' is what
they call it around here, which means stretch out the debate until
there is no end in sight, and then you file what is called a cloture
motion to close down the debate to get to a vote, but you need 60 votes
to close down the debate. So these cloture motions to stop filibusters
are brought to the floor, and if you don't have 60 Senators who will
say close down the debate and get to a vote, you have to move to
something else. The filibuster worked. Last week, three times the
Republicans had successful filibusters, stopping us from debating a
change in the policy in the war in Iraq to start to bring American
soldiers home.
Then, the second vote was a report from the Bush administration on
the progress that is being made to capture Osama bin Laden and to stop
worldwide terrorism. They filibustered that too. They didn't want the
administration to report.
Then came the housing bill to deal with the mortgage crisis around
America, and we had six very sound and good ideas to try to deal with
it. They filibustered that, too, and they stopped it. What
a frustration. At the end of
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the week, to say we spent all this time--30 hours between each vote,
incidentally--and nothing happened. Frankly, if we were being paid on
the basis of productivity here, none of us deserve a paycheck for last
week because we did nothing. There were a few inspiring speeches on the
floor, but nothing happened.
Well, the problem, of course, is the issues we addressed last week
are still issues this week and will be for a long time to come. The war
in Iraq is still claiming American lives. We are perilously close--
sadly close--to 4,000 American soldiers who will have died in a war
that has lasted longer than World War II, a war that is going into its
sixth year, a war that has cost us 4,000 American lives, 25,000 or more
American soldiers seriously injured, and by the end of this President's
term, $1 trillion. We are spending $10 billion to $15 billion a month
on this war. We have this budget that comes along, but we don't have
enough money for medical research at the National Institutes of Health.
We don't have enough money to fund No Child Left Behind so that the
schools can improve their standards. We don't have money to expand
health insurance coverage for uninsured children in America, but we
have enough money to spend $10 billion to $15 billion a month
indefinitely on this war in Iraq. Is that worth a debate? Is it worth
it for Senators on both sides of the issue, both sides of the aisle to
stand up and say where they stand and to vote? I think that is why we
are here. If it isn't, then I have missed something completely. I am
honored to be representing the great State of Illinois, and I don't
believe for a minute that my views are the views of everybody in that
State. When I cast a vote or make a speech, I go back home and people
ultimately make a judgment as to whether I should continue to represent
them.
This Senate has now become dysfunctional. This Senate is now wrapped
up in filibusters. Last year, the Republican minority in the Senate
initiated 62 filibusters--62 filibusters in 1 year. It was an all-time
record. The record before that was 62 filibusters in 2 years. They
doubled the record number--the rate of the record number of filibusters
in the history of the Senate. Why? To avoid a vote; to avoid votes on
issues that may be used against you in a campaign. Please.
My good friend, the late Congressman from Oklahoma, Mike Synar, used
to say: If you don't want to fight fires, don't be a firefighter. If
you don't want to stop crime, don't be a policeman, and if you don't
want to vote on tough issues, don't run for Congress. I agree with him.
I don't like facing tough votes, but it is a part of the job. You ought
to at least have enough confidence in your beliefs to cast that vote
and go home and explain it.
But the Republican side of the aisle is now trying to insulate their
Members from even casting tough votes. Is it any wonder the national
approval rating of Congress is so low after last week, the Republican
strategy of filibuster after filibuster after filibuster and at the end
of the week nothing happened.
One of the last things we debated is the housing crisis. I wish to
tell my colleagues, if you read the newspapers over the weekend and
this morning, we are whistling past the graveyard as a nation. Our
economy is in serious trouble. I would not use the word ``recession''
because the recession is, by tight definition, two negative quarters of
business growth. We have not had that. I hope we don't. But everyone
knows the economy is in trouble. It is obvious from the unemployment
statistics. It is obvious in the disparity of income, where some
executive of a major company can make more money in 10 minutes than a
worker who works all year in a factory. It is obvious in all the jobs
we have lost in this country, good-paying factory jobs, now shipped
overseas. For those who remain, ask the people working there about the
cost of their health insurance. It goes up every year and covers less.
Ask them about their pension plan: Oh, it used to be a good one for my
dad, but I am in a new group of employees and ours is not so good. That
is the reality of the economy today.
But at the heart of our economic problem is the housing crisis: 2.2
million Americans will face foreclosure in the few years--2.2 million
subprime mortgagers who put a mortgage on their home and now they can't
make the payment when the adjustable rate mortgages change. In the old
days, you signed up for a 25- or 30-year mortgage and the interest rate
and term of the mortgage and monthly payments were predictable:
principal and interest. You knew what you were going to face. Not
today. Under subprime mortgages, the mortgage banking industry came in
with the most exotic products you could imagine: interest only
mortgages, mortgages where you pay a little bit now and it changes
later on. It became almost impossible to follow. Sadly, a lot of people
signed up for mortgages they didn't understand, or that they were
deceived into signing. I don't know if you have ever gone through a
real estate closing--I have a few times in my life. I went through a
lot of them as a lawyer. You know what they hand you at closing, that
stack of papers, they shove it right in front of you and the banker or
the realtor, whoever happens to be in the room, says: Well, you need to
sign all these forms, you and your wife need to sign them.
What are they?
Oh, Federal forms, Truth in Lending, all of these things; the State
requires them, the Federal Government.
So you turn the pages and sign and sign and sign, and then they say:
Fine, OK. Thank you very much. You can move into the house next week.
You often wonder--I know I have--has anybody ever read those? Do you
know what is in there?
Do you know what happened to a lot of people? They ended up going
through closings and signing up for mortgages that were downright
unfair. Many of them were deceived into signing up for mortgages which,
frankly, I think were predatory, unfair, and a blight on the mortgage
banking industry. That is why so many of them are so-called
``underwater'' now. Companies and banks are writing off so many of
these loans because they were luring people into circumstances that
weren't possible, and people ended up losing their homes.
What happens when 2.2 million homeowners, out of a population of 300
million people, lose their homes? You think: It doesn't sound like
much, 2.2 million. If a person in your neighborhood files for
foreclosure or bankruptcy because they are going to lose their home, it
affects the value of your home, even if you are paying your mortgage
every single month. Do you know why? Because the value of your home is
based on the average sales price in the area. If the neighbor's house
down the street went up for auction because of a foreclosure and sold
below fair market value, it drags your property value down. One out of
three homeowners in America now making their mortgage payments
dutifully will see the values of their home go down through no fault of
their own. The most important asset in your life for most families is
diminishing in value because of the mortgage foreclosure crisis.
So what does the administration say we should do about this national
economic crisis? Not nearly enough. The most forward-looking proposal
from the Bush administration could affect 3 percent of the people
facing foreclosure. Three out of one hundred might be helped by their
approach. That isn't enough. Until we turn this housing crisis around,
this economy will not turn around. I think that gets to the heart of
it.
So here is what our bill says. Our bill says we are going to put more
mortgage counselors out on the street. If you can't make your mortgage
payment, it doesn't do you any good to hide in a cave. Eventually, they
are going to catch up with you. Reach out and talk to somebody you can
trust. That is what the mortgage counselors are all about.
Senator Jack Reed of Rhode Island has a provision which I think is so
simplistic and straightforward it makes eminent sense. When you sit
down at that real estate closing, there ought to be a cover sheet right
in front of you and it ought to say: You are borrowing X number of
dollars. You are going to pay X interest rate. That interest rate in 2
years may change to X. Your monthly payment now is X. Your monthly
payment then will be Y. There is a penalty or there is no penalty for
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prepaying your mortgage. Five pieces of information: none of which are
that hard to come up with, but at least as a buyer, right there in
front of you, are the basics. You know what you are getting into.
Senator Reed of Rhode Island put that in our package, our housing
package.
Well, maybe that would have passed but for one provision. The
President announced last week he would veto our housing bill because of
a provision I added to it. I wish to take a minute to explain it.
I think it really gets to the heart of this debate. If you listen to
the Presidential campaign, it is all about who controls this place and
the House of Representatives. Is it a special interest lobbyist out in
the hallway, well dressed and well paid, or will it be the voters and
the people in this country? That is the fundamental question of this
Presidential campaign.
Why is Congress tied up in knots and failing to do anything? Who
controls Congress? Whom does Congress answer to? That is the debate
going on across America now. Boy, you would not hear much about it in
this Chamber. Why? Because the Mortgage Bankers Association came out
against my provision and said defeat this bill because of this
provision.
Let me tell you what it does. About a third of the people facing
foreclosure will end up in bankruptcy court. They will go to chapter
13, which is an effort to try to work it out, where you say: Here is my
income, my assets, and my debts; is there any way I can make payments
and keep my home and do these things? The court then looks at it and
brings in all the creditors and tries to work out a package deal so you
can stay in your home, through chapter 13, and get through it.
Now, if you are facing hard times and foreclosure on your vacation
condo, the court could sit down and work out the terms of your
mortgage--in terms of the length, how much you will pay, and the
interest rate you will pay. If you have a farm or ranch, the court can
do the same thing and work out the terms to see if maybe it can work,
if a package can be put together that lets you keep your properties.
But the law specifically prohibits the bankruptcy court from modifying
the terms of the mortgage on your home--vacation condo, yes; farm, yes;
ranch, yes; but your home, no. Why is that? It is because the law was
written 20 years ago that says they cannot touch it.
Well, we change that law. We allow the court, under specific
circumstances, to modify your home mortgage. Let me tell you the
conditions.
First, it only applies to people currently holding a mortgage, not
prospective, and it is not changing the law forever.
Second, it only applies to those with subprime mortgages, the ones
with the serious problems.
Third, it only applies to those who can qualify to go into bankruptcy
court. Most people cannot get into bankruptcy court because you have to
prove that your debts are more than your income.
Fourth, when they modify the mortgage, they cannot go below the fair
market value of the property. If the property goes into foreclosure and
the bank ends up owning it and they sell it at auction, almost never do
they get fair market value for it. We say that the fair market value is
the bottom line as to what that mortgage can be modified to. We also
say the interest rate will be the prime rate plus a premium for risk.
So we look at the interest rate.
We add another provision. Say you bought the home for $500,000 and it
is worth $450,000 now. They can work out an agreement in bankruptcy
that you can stay in the home and pay the mortgage on $450,000. Then,
in 2, 3, or 4 years, as the value goes back up to $500,000, that
difference goes to the bank, not to the individual. So they are
protected on the upside by that provision and on the downside by fair
market value.
The mortgage banking industry opposes this. They won on the floor of
the Senate last week. Only one Republican had the courage to vote with
us for this change. Every other Republican Senator voted no. So if
there is any question about a scorecard, the mortgage bankers who,
incidentally, got us into this mess with the subprime mortgages and
who, in many instances, deceived people into mortgages that were
totally unfair to them and their families, these mortgage bankers
prevailed. The housing stimulus package failed.
I hope we can return to this, and I hope we can do it this week. The
problem is still there. Sunday, the Chicago Tribune editorialized
against my bankruptcy provision and said this is going to raise
interest rates across the board; that the industry is going to raise
interest rates because if they have to face the prospect of modifying
their mortgages, they are going to have to raise interest rates.
So I did a little calculation. If 600,000 people go into bankruptcy,
on the upside, and we have about 120 million homeowners in America,
that is one-half of 1 percent of those who would be affected by it.
So I don't think their fear-mongering is going to work. Sadly, they
carried the day last Friday. We have to try again. There is not another
provision in this housing stimulus that will reach as many people--even
600,000--as the provision I have described.
I see that the Senator from Pennsylvania is anxious to speak. I will
wrap up in just a minute.
This situation with this provision is very important. When I asked
the industry, ``Why do you oppose this?'' do you know what they tell
me? The ``sanctity'' of the contract. Well, I will tell you, if
sanctity means holiness, there is nothing holy about the subprime
mortgages I have been told about or about a subprime mortgage that a
person signed up for. For example, a poor lady who is retired, age 65,
was lured in by some television ad and had papers pushed in front of
her at closing. She was told she could save her home if she signed this
package. There is nothing holy about what happened to the woman in
Peoria, IL, who, after her husband faced a fatal illness, had to get
into a one-story home so he didn't have to climb stairs. Some adviser
along the way convinced her to consolidate all of her debt into her new
home with an adjustable rate mortgage, and her monthly payments doubled
to the point where she cannot now stay in there. There is nothing holy
about the mortgage that the couple from Cleveland faced, who came to
see us last week. They are both hard-working people, and they are about
to lose their home outside of Cleveland. They thought they were doing
the right thing. In the fine print, it said that the mortgage interest
rate can never go down, it can only go up. They didn't know that. This
poor man is a maintenance supervisor. Who told him the real terms of
the mortgage? The sanctity of the contract. The holiness of the
contract.
I will tell you, our job here is to make sure people in America are
treated fairly; that big companies, whether they are mortgage banks or
corporations, are held to a standard of conduct that recognizes
civility, ethics, and moral conduct. What we have seen in this subprime
mortgage mess--sure, there has been wrongdoing on both sides, but
overwhelmingly a lot of people have been deceived into losing their
homes.
The mortgage bankers won the first round last week. Congratulations.
Hats off to them. They clearly have sway over the Congress at this
moment. But I hope that changes. I hope some people in the Senate will
reflect on this and really try to do something about the housing crisis
and to get our economy back on its feet.
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Pennsylvania is
recognized.
Mr. SPECTER. Mr. President, I had been advised that I would have 30
minutes in morning business. I ask unanimous consent that I be
permitted to speak for up to 30 minutes.
The ACTING PRESIDENT pro tempore. Is there objection? Without
objection, it is so ordered.
Mr. SPECTER. Before the Senator from Illinois leaves the floor, I had
come to the floor to talk about the confirmation of judges, but while
the Senator from Illinois is still on the floor and has spoken on a
subject he and I have been working on for some time, I would appreciate
it if he would wait just a few minutes while I engage him in some
dialog and debate and try to deal with the issue on which we have been
working.
Mr. DURBIN. I am happy to.
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Mr. SPECTER. Mr. President, the Senator from Illinois has proposed
legislation that would authorize bankruptcy courts to reduce the
principal value of mortgages--so-called ``cram down''. I have
introduced legislation that would authorize bankruptcy courts to reduce
the interest rates on variable rate mortgages. I have taken the
position I have because I believe giving bankruptcy courts the
authority the Senator from Illinois has advocated for would have a
serious, disruptive effect, discouraging lenders from loaning money for
home mortgages. I am not alone in that view. Congress expressed that
view when it expressly barred bankruptcy courts from modifying
mortgages. Justice Stevens noted this in Nobleman v. American Savings,
when he said the following:
At first blush, it seems somewhat strange that the
Bankruptcy Code should provide less protection to an
individual's interest in retaining possession of his or her
home than of other assets. The anomaly is, however, explained
by the legislative history indicating that favorable
treatment of residential mortgages was intended to encourage
the flow of capital into the home lending market.
That is to say, in essence, that if bankruptcy courts could modify
mortgages, lenders would issue fewer mortgages in the future, a serious
disadvantage to Americans who want to buy homes down the road.
It is this concern that led me to introduce legislation that would
allow bankruptcy courts to modify mortgages in a very limited way. My
bill focuses on the problem by allowing bankruptcy judges to modify
interest rates on mortgages where the rate has increased dramatically.
The number of these types of mortgages has increased substantially in
recent years. In 2001, adjustable rate mortgages accounted for 16
percent of all home loans. By 2006, this share had increased to 45
percent.
The Senator from Illinois has characterized my legislation in
somewhat uncomplimentary terms, to put it mildly. He said:
Specter's language is worse than useless. It's
counterproductive. It creates the image of action and
response and it does nothing.
Worse than useless. That is very tough talk, but let's examine what
the facts are. The facts are that the rate of delinquency and
foreclosure on adjustable rate mortgages has been very considerable, in
contrast with what has happened on fixed rate mortgages. As payments on
adjustable rate mortgages have reset, many homeowners have had their
monthly payment increase substantially. On average, a $1,200 monthly
mortgage payment has increased by $250 to $300. Among homeowners with
subprime adjustable rate mortgages, the percentage that was either 90
days past due or in foreclosure has more than doubled from 6.5 percent
in the second quarter of 2006 to 15.6 percent in the third quarter of
2007. The percentage of homeowners with prime adjustable rate mortgages
who are either 90 days past due or in foreclosure has more than
tripled, from less than 1 percent in the second quarter of 2006 to 3.12
percent in the third quarter of 2007.
Contrast this with delinquencies and foreclosures among homeowners
with fixed rate mortgages. The percentage of homeowners with fixed rate
mortgages who are either 90 days past due or in foreclosure has
increased only slightly from 5.72 percent in the second quarter of 2006
to 6.61 percent in the third quarter of 2007. Similarly, among
homeowners with prime fixed rate mortgages, the percentage who are
either 90 days past due or in foreclosure has only increased from .63
percent to .83 percent.
The point of all this is that adjustable rate mortgages have created
an enormous problem for many homeowners. But that has not occurred
where there are fixed rate mortgages. So it hardly seems to me that
Arlen Specter's language is ``worse than useless.''
It hardly seems that my proposal is counterproductive or that it
creates the image of action and response but does nothing.
The fact is, it attacks the very core of the serious we face today
problem. On one point the Senator from Illinois and I agree--we have a
very serious problem. I wish to see this Senate address it. The fact is
we could use some constructive work around here. May the Record show
the Senator from Illinois nods in agreement. So we have quite a few
points here that are not totally Arlen Specter useless.
Mr. DURBIN. May I ask the Senator a question through the Chair?
Mr. SPECTER. I don't mind the presumption if the Senator will use his
microphone.
Mr. DURBIN. It is not turned on. Now it is turned on. I wish to
respond through the Chair and not take anything away from Senator
Specter's time; that any time I use be taken from me. I will be very
brief.
Mr. SPECTER. I will finish in less time than the Senator from
Illinois used when he said he was about to finish. I only wish to say
that I hope we will take it up in the Judiciary Committee this week and
report it out of Committee, which is what ought to be done before it
comes to the floor. Then perhaps we will have more time for an extended
debate.
I will be glad to hear the response from the Senator from Illinois.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Mr. DURBIN. Mr. President, I thank the Senator from Pennsylvania for
his effort to cooperate and with me.
First, he is concerned about the impact on interest rates if my
bankruptcy provision goes through. Understand, it only applies to a
fixed, finite, limited group of adjustable rate mortgagees who are
facing foreclosure and going to bankruptcy court. The up-side estimate
is 600,000. I think more realistically 400,000, 500,000 would qualify.
To suggest we are changing the policy of mortgages in America and
will precipitate higher interest rates for all Americans from this
point forward does not apply. We are dealing with a specific emergency,
a specific crisis, and a specific response.
I will readily concede with some humility that my remarks were harsh
and perhaps strong in relation to the Senator's amendment. But I will
tell him why I felt that way and why I reacted that way.
There is one point in his amendment that he has not said on the
floor. He gives the bank the last word. The bank makes the decision
whether the mortgage is going to be changed. As long as the bank has
the last word, nothing is going to happen. There is not a thing that
bank cannot already do today in renegotiating the terms of the
mortgage, and they are not doing it.
I have said to the Senator from Pennsylvania that I think that is the
critical element, the critical difference in our approach. I believe
the bankruptcy court should have the last word. The Senator from
Pennsylvania believes the mortgage bankers should always have the last
word. I don't think that is a reasonable way to approach it.
In terms of the number of adjustable rate mortgages, they are the
problem. Six years ago, some estimated that about one out of twelve
faced foreclosure. Today the estimate is one out of two. Clearly, the
problem needs to be addressed. I tried to narrow my amendment so it
addresses those now, it does not have a long tail to it, and does not
give the bank the last word.
Mr. SPECTER. Mr. President, the conclusive response to the argument
by the Senator from Illinois is that my bill allows the court to reduce
the principal on a mortgage--a so-called cram down--if the bank agrees
and if it is indicated by the facts. What the Senator from Illinois
failed to note is that my bill gives full leeway to bankruptcy courts
to adjust interest rates--which the Senator from Illinois has already
acknowledged is the real problem.
Under current law, the court does not have the power to reduce the
principal on a mortgage. So I added the provision that if the lender
were in agreement, and if it makes sense in many cases this option will
cost less than foreclosing--then extend the authority to court to make
that adjustment.
Mr. President, how much time remains of the 30 minutes?
The ACTING PRESIDENT pro tempore. The Senator has 21\1/2\ minutes
remaining.
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