[Congressional Record Volume 154, Number 54 (Monday, April 7, 2008)]
[Senate]
[Pages S2620-S2622]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            HOUSING PROBLEMS

  Mr. BOND. Mr. President, I thank the majority leader for his kind 
words about the housing bill that is before us. This is the measure on 
which we are working on a bipartisan basis to deal with what is one of 
the most serious economic problems we face today in America and across 
the world. There has been so much subprime mortgage paper put out from 
adjustable rate mortgages and teaser mortgages in the United States 
that it has gone into financial systems in many countries, and they are 
facing similar problems to the ones our financial system faces here.
  I believe there are a lot of steps that are important that we take at 
the macro levels, things the Federal Reserve does and what the Treasury 
can do and what the government-regulated, government-sponsored entities 
can do. But it is also my firm belief that this problem is one that we 
are going to have to save community by community, neighborhood by 
neighborhood, and family by family. That is why I have an amendment 
filed today, Bond amendment No. 3436, to avoid these problems in the 
future.

  I have listened to a lot of homeowners, and one of the real problems 
we have is right now there is not a clear and simple disclosure of 
payments and interest rates for adjustable rate loans with the so-
called teaser rates. The teaser loans with interest rates and payments 
that jump up to unaffordable levels played a large part

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in the current subprime mortgage crisis. Many potential borrowers 
either did not understand what they were getting into or were falsely 
assured that everything would be OK. That is a part of bringing relief 
to families and neighborhoods suffering through the current housing 
finance crisis. I want to ensure we do not face another crisis in the 
future because we did not correct the problem.
  For those of us who have taken out a mortgage loan to buy or 
refinance a home, we know what a pile of paperwork we face and all the 
legal jargon. I am a recovering attorney. I have had the experience of 
having that stack of papers--enough to choke a horse--put down in front 
of me, and the real estate agent, whoever is there, just says: Sign 
this, sign this, sign this, sign this, sign this. About 40 minutes 
later, you are dizzy from signing, and nothing in those papers clearly 
tells you what you are getting into. That is why we passed the original 
Truth in Lending Act and applied it to home mortgage loans. We knew 
then that most people did not take the time to read and understand the 
fine print in mortgage loan documents.
  Regrettably, the consumer protections in the original Truth in 
Lending Act were written long ago and are outdated--woefully outdated. 
They were written when most bought a home with a 30-year fixed rate 
mortgage. Now--and this is a good thing--there are many more loan tools 
to help people share in the dream of home ownership. There are 
adjustable rate mortgages, adjustable rate mortgages with initial fixed 
terms, sometimes called teasers, prepayment penalties, refinance 
options, quicker and easier than ever before. But while more choices 
can be a good thing, uneducated consumers or consumers who do not have 
assistance in understanding that information may not understand that 
what they are doing is falling into a trap.
  I want to see the disclosures laid out simply so that nobody is 
caught in a trap the way one of my constituents, Willie Clay of Kansas 
City, MO, and his family were caught. I shared Willie's story on the 
floor a month ago when we first introduced the SAFE Act, Security 
Against Foreclosure and Education Act, a relief bill, which forms the 
basis of the Dodd-Shelby bill before us.
  Willie lives in a working-class Kansas City neighborhood of modest 
ranch homes called Ruskin Heights. He was a Vietnam war paratrooper, 
living largely on disability payments. He refinanced a mortgage in 2004 
for a total of $101,000. As we can see, Willie is a man of modest 
means. He was not a speculator gambling on the housing market; he was 
not an investor buying a vacation home; he just wanted to live in a 
decent home. He was looking for extra money to pay off his medical 
bills, car loans, and some credit cards, and he agreed to a subprime 
adjustable rate loan with an initial fixed rate of 8.2 percent. For 
several years, everything went fine. He made the payments, honored his 
agreement. Then, last October, the initial fixed rate ended and the 
loan reset to a variable rate. Given the condition of the market at the 
time, his new interest rate became 11.2 percent and then was set to 
rise again in March to 12.2 percent, with more rises coming.
  Willie told the Kansas City Star:

       If the rates go up again, I can't afford it.

  Willie and his wife Ina would have to give up their home and move 
into an apartment. Willie now admits that he never fully understood how 
an adjustable rate worked when he agreed to the new loan. I will tell 
you, Mr. Clay, don't feel alone. There are a lot of people who do not 
understand the terms of their mortgage, and it is far too confusing 
under the system we have now.
  He said:

       I don't have the education to understand it. And they 
     didn't explain it to me. I thought if the interest [rate] 
     went down, your payment went down. If the interest rate went 
     up, your payment stayed the same.

  Willie was now facing a mortgage payment 50 percent higher than when 
he started. He was trapped in his loan because there was a $2,500 
prepayment penalty, which prevented him from getting out. This is not 
just Willie Clay's family crisis. The entire neighborhood is suffering 
through this housing crisis. There are more than 500 foreclosures in 
his ZIP Code alone. On Willie's block, there are already several empty 
houses.
  Foreclosed homes are dragging property values down for everyone. It 
is becoming a self-perpetuating downward spiral. That is why I felt so 
strongly about how we need to help these suffering families and 
neighborhoods. That is why we introduced the original Security Against 
Foreclosure and Education Act.
  The ``e,'' for education, focused on language meant to prevent this 
problem in the future, and that is the subject of the amendment that 
will be before us when we return to the bill.
  My amendment, representing the disclosure requirements from the SAFE 
Act that were not transferred to the Dodd-Shelby substitute, updates 
the Truth in Lending Act to modern times.
  The Bond amendment will apply to adjustable rate mortgages with an 
original fixed or teaser rate. This is the kind of loan Willie Clay had 
and millions of Americans across the country hold. For these types of 
adjustable rate loans with teasers, lenders or brokers will be required 
to provide in large, prominent type the loan's fixed interest rate, the 
initial fixed payment, and the date on which the fixed rate will 
expire. The lender or broker will also need to provide an estimate of 
what the payment will be when the loan resets from its initial teaser 
rate to a floating adjustable rate. For many subprime borrowers lured 
with a low teaser rate, this jump can be quite large, and borrowers 
should be aware of it. If they are not aware of it, then they should 
not be permitted to do the loan.
  What we are saying is, put the critical dollars-and-cents items in 
large type on the first one or two pages. Don't bury this in a whole 
bunch of legal mumbo-jumbo that we lawyers--my colleagues who are still 
lawyers--love to write to make sure we cover every possible 
contingency.
  The Bond amendment also requires lenders to disclose that there is no 
guarantee the loan can be refinanced before the initial fixed rate 
expires. Too many of the people in this trap now have said and told me 
and others that they were told there was no problem to refinance. Yes, 
there is a problem, and a lot of borrowers were caught when they found 
out they could not refinance. They did not know how high their rates 
could go after the teaser rate expired. Any concern they had that they 
could not afford their loan in the future was put to rest by the broker 
with a reassurance that there was no problem refinancing the loan 
before the teaser rate expired. For many, this turned out to be true, 
but when the credit market seized up and loan standards were raised, 
the rest were caught in this squeeze.
  The amendment I will ask this body to adopt requires a disclosure 
that there is no guarantee the borrower will be able to refinance the 
loan when the teaser rate expires.
  The Bond amendment also requires disclosure of any prepayment 
penalty, the amount, and its expiration date. Prepayment penalties is 
what caught Willie Clay and his family. While prepayment penalties can 
be good, giving certainty to the lender, who can in turn provide a 
lower interest rate, people need to be aware of what they are getting 
into and how it will be costly to get out.
  That is the theme of this entire amendment. It does not block 
adjustable rate mortgages. It does not block initial fixed rates. It 
allows prepayment penalties, an opportunity to refinance quickly.
  The advantages in the mortgage business have been good for consumers, 
allowing a new generation of home buyers to share the American dream. 
It just requires plain disclosure of loan terms so that people will 
know what they are getting into.
  Some may ask why we need to be prescriptive in telling brokers what 
to say and regulators what to require. That is because in this 
situation, current protections and oversight have failed. Brokers and 
lenders did not do enough to disclose to and educate consumers. 
Regulators also failed here, and they continue to fail. Neither HUD nor 
the Fed required disclosure of these terms in the past, neither sought 
to increase disclosures when the subprime crisis started, and neither's 
most recent proposal takes this on.
  The American consumer cannot wait while the bureaucracy, slow to move

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before, further delays and equivocates on what must be done now. What 
must be done is simple, straightforward disclosure of the most basic 
loan terms--rate, payment, new rate, new payment, penalties, and 
guarantees.
  These are basic consumer protections which I expect will help prevent 
a future home loan crisis and trapping of a large number of American 
families who are caught in this situation now. I urge my colleagues to 
adopt them and to support the Bond amendment when it is brought up.
  Mr. President, I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from North Dakota.

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