[Congressional Record Volume 154, Number 104 (Monday, June 23, 2008)]
[Senate]
[Pages S5953-S5954]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               RESTORE CONFIDENCE IN MORTGAGE SECURITIES

  Ms. SNOWE. Mr. President, I wish to speak to an amendment that I will 
offer which will increase the trustworthiness of the Nation's mortgage 
security market by creating the Federal Board of Certification for 
mortgage securities.
  The recent collapse of Bear Stearns and the huge losses suffered 
throughout the financial industry demonstrate a catastrophic failure to 
accurately assess the dangers of imprudently made subprime mortgages to 
the American public and our financial markets. In hindsight, it appears 
that it was the inability to gauge risk in mortgage-backed securities 
that caused much of this financial turmoil. For markets to operate 
properly, it is imperative that they have effective metrics for 
calculating the level of risk securities pose to investors.
  The secondary mortgage market has been a largely unregulated 
playground where poorly underwritten, low-quality loans were sold as 
high-quality investment products. Although mortgage-backed securities 
can be a positive market force, which increases the available pool of 
credit for borrowers, without an accurate picture of the risk involved 
in each mortgage security, buyers have no idea whether they are buying 
a high-risk investment or a safe, secure investment. My legislation 
would work to curb the excesses of the secondary market, combat future 
attempts at deception, and protect investors by making securitized 
mortgage investments more reliable and trustworthy.
  The inability of major corporations to properly assess the risk of 
the mortgage securities they were trading is a problem whose effects 
have not been confined to Wall Street. To put it simply: When big banks 
sneeze, the rest of America gets a cold. By 2009, more than a trillion 
dollars of the subprime mortgages originated during the housing boom 
will reset to higher interest rates. Currently, according to the 
Mortgage Bankers Association, 43 percent of subprime adjustable rate 
mortgages are already in foreclosure. In my home State of Maine, we are 
struggling with falling home prices and a record number of 
foreclosures. Some Maine borrowers, with rising monthly payments, are 
unable to refinance out of their predatory loans. Small business 
owners, many already hurt by the economic downturn, are also finding 
credit tight. The bad economic climate caused by the subprime credit 
crunch is roiling the stock market causing Americans to loose billions 
in their IRAs and retirement funds.
  We need to fix this crisis before it gets any worse and make sure it 
never happens again. Francis Bacon said that ``knowledge is power.'' My 
amendment would give investors the knowledge to make intelligent 
calculations of risk and, as a result, it would give them the power to 
decide how much risk they could collectively handle.
  Turning to specifics, my amendment creates the Federal Board of 
Certification, which would certify that the mortgages within a security 
instrument meet the underlying standards they claim in regards to 
documentation, loan-to-value ratios, debt service to income ratios, and 
borrowers' credit standards. The purpose of the certification process 
is to increase the transparency, predictability, and reliability of 
securitized mortgage products. Certification would aid in creating 
settled investor expectations and increase transparency by ensuring 
that the mortgages within a mortgage security conform to the claims 
made by the mortgage product's sellers.
  The proposed Federal Board of Certification would not override any 
current regulations and would not, in any way, stifle any attempts by 
private business to rate mortgage securities., This legislation would, 
however, create incentives for improving industry rating practices. 
Open publication of the board's certification criteria would augment 
the efforts of private ratings agencies by providing incentives for 
increased transparency in the ratings process. The board's 
certification would also serve as a check on the industry to ensure 
that ratings agencies carefully scrutinize the content of mortgage 
products before issuing evaluations of mortgage-backed securities.
  Significantly, the Federal Board of Certification would also be 
voluntary and funded by an excise tax. Users could choose to pay the 
costs for the board to rate their security, or they could elect not to 
submit their product to the board.
  We must quickly restore confidence in the U.S. mortgage securities if 
we are to stabilize our housing markets

[[Page S5954]]

and enable families to refinance their expensive loans. To do this, we 
must certify the quality and content of our mortgage securities and 
enable those markets working again to create liquidity and lending. 
This is why it is urgent to create the Federal Board of Certification 
for mortgage securities. This legislation would create a ``good 
housekeeping seal of approval'' for the mortgage security industry and 
certify that the mortgage products are in fact what they claim to be. 
Accordingly, I call on Congress to take up and adopt this commonsense 
amendment as expeditiously as possible.
  I encourage my colleagues to strongly support the creation of the 
Federal Board of Certification. This legislation will restore trust in 
U.S. financial markets and mortgage securities which will help American 
businesses and ultimately, most crucially, American families.

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