[Congressional Record Volume 154, Number 143 (Wednesday, September 10, 2008)]
[Senate]
[Pages S8222-S8223]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       FANNIE MAE AND FREDDIE MAC

  Mr. DURBIN. Mr. President, Sunday's announcement by Treasury 
Secretary Paulson that the Treasury Department and the Federal Housing 
Finance Authority would be placing Fannie Mae and Freddie Mac into 
conservatorship should be recognized for what it is: This is a landmark 
intervention by the Federal Government into our private markets, the 
housing markets. We are literally nationalizing half of the American 
housing market. The Bush economic policies and the irrational 
exuberance of the mortgage banking industry have driven us into this 
box canyon. The U.S. economy is hurting, with dramatic job losses, home 
values reeling, and middle-income families struggling to pay for the 
basic necessities.
  While it may have been necessary and may have been the best of many 
bad options, this certainly raises significant long-term questions 
about how we organize and regulate mortgage financing in this country. 
This move may stop the rot for now, but real reform must follow.
  With this administration's days numbered and only a few months left, 
it will be up to the next President and the next Congress to face these 
issues honestly and quickly.
  For my part, I intend to make the case in the coming months that 
there is a sensible role for Government to play in the regulation of 
markets, regardless of what some may argue to the contrary. Letting our 
private sector markets run amok can lead to excessive booms and 
bailouts, as last weekend's actions evidence.
  There are two things that merit immediate attention. I have written 
to the Secretary of the Treasury, Henry Paulson, Federal Housing 
Finance Authority Director Lockhart, and the incoming CEOs of Fannie 
Mae and Freddie Mac asking two things: First, it is unconscionable to 
reward the outgoing CEOs of these companies with golden parachutes that 
will literally cost the taxpayers millions of dollars--some estimate 
$24 million--in farewell gifts; second, that we focus on restructuring 
the mortgages owned or serviced by Fannie Mae and Freddie Mac. Our goal 
needs to be structuring mortgages so troubled homeowners can keep up 
with their house payments and not lose their homes.

  According to analysts cited in news coverage, the two ousted CEOs of 
Fannie Mae and Freddie Mac may be entitled to over $24 million as a 
farewell gift from American taxpayers for running their companies into 
the ground. With taxpayers across America now facing the burden of 
paying up to $200 billion in bailout costs for these agencies, I find 
this unconscionable.
  Income equality in our country continues to grow. Middle-class 
families continue to work hard for paychecks that can't keep up with 
the cost of living. Yet compensation for senior executives has risen 
dramatically over the last 8 years.
  My colleague, Senator Jim Webb, not that long ago, in response to the 
State of the Union Address, noted that in the 1960s the CEOs of major 
corporations made 20 times more than the average worker. Today, they 
make 400 times more than the average worker. That means that literally 
each day a CEO works, he makes more than the average American worker 
makes in a year. How can we be asked to enshrine this inequity with 
taxpayers' dollars? We are being asked to reward incompetence and to 
lavish millions of dollars on the CEOs of Fannie Mae and Freddie Mac 
who have failed in their assignment. A worker who doesn't do his job 
will be given a pink slip, but a failed CEO of Fannie Mae or Freddie 
Mac is given a multimillion-dollar windfall.
  I understand that both of these individuals were brought on the job 
to try to save failing agencies, but it is also true that in the case 
of the head of Fannie Mae, Daniel Mudd, he was paid $11.6 million as an 
income last year as Fannie Mae was headed into the tank. Mr. Syron, 
Richard Syron, who headed up Freddie Mac, was paid $18.3 million last 
year and given stock options. It turns out those stock options have 
become almost worthless. The fact is that they are still being 
rewarded--unless we do something--with farewell gifts and golden 
parachutes as they leave.
  When Mr. Mudd took over Fannie Mae some 4 years ago, the shares were 
trading at $70. On Friday, the day the news of the possible takeover 
started to leak out, Fannie Mae shares were trading at $7. On Monday, 
the shares closed at 73 cents.
  Freddie Mac had its own accounting problems when Mr. Syron took over 
in December of 2003. The company was forced to admit it had inflated 
its earnings by nearly $5 billion. Like Mr. Mudd, Syron--who had served 
as a chief executive at other companies before--had been brought on 
pledging to fix the company and get it back on track. Freddie's shares, 
which traded for about $55 when Mr. Syron took over in 2003, dropped to 
about $5 last Friday and then to 88 cents on Monday.
  You don't have to be a subscriber to the Wall Street Journal to 
realize these two men failed in their assignments. Given 3 or 4 years 
to right the ship and steady the course, they failed. Yet, in their 
failure and departure, they are asking for a rich reward--literally 
millions of dollars to be paid by the taxpayers. That, to me, is 
indefensible. That is why I have joined others in Congress, including 
Senator Obama, Senator Reid, and Senator Schumer, in writing to the 
Treasury Secretary and the head of the Housing Finance Authority and 
telling them to stop the

[[Page S8223]]

golden parachutes for Mr. Mudd and Mr. Syron.
  However, there is more that needs to be done. Last Sunday, Secretary 
Paulson called me to explain what was going to happen with Fannie Mae 
and Freddie Mac.
  I told him I didn't know what else he could do. To allow these two 
housing giants to fail could literally cause reverberations across the 
economy, hurting many innocent companies, shareholders, and workers. I 
thought we had to step in. We had no choice. But it is not enough. To 
ride to the rescue of Bear Stearns, as our Government has, or to the 
rescue of Fannie Mae and Freddie Mac, as we have, is, of course, an 
effort to avert a worse disaster. But there are literally hundreds of 
thousands of small-scale disasters taking place every day, which still 
evidence a serious problem in the American economy. I am speaking, of 
course, of foreclosures. Despite the passion this administration has 
for making sure corporations survive bad times, they don't have a 
similar passion for families facing foreclosure.
  The letter I have written to the Treasury Secretary calls on him, as 
part of this restructuring of Fannie Mae and Freddie Mac, to at least 
consider a helping hand for those facing foreclosure.
  When IndyMac Federal Bank was taken over by the FDIC in July, the 
FDIC instituted a systematic plan to refinance troubled mortgages to 
help those homeowners avoid foreclosure. It set up strict criteria for 
those who would be eligible. It would not help speculators but those 
who had their homes at stake. It initiated restructurings for all of 
the mortgages that qualified. However, when it comes to the other 
mortgages across America, I am afraid there is a sad story to tell, 
where there has been a failure to refinance, a failure to create 
opportunity for people to stay in their homes. Foreclosure is a 
disaster for any family facing it, but it is also a disaster for their 
neighbors. The value of my home in Springfield, IL, has diminished 
because some of my neighbors have gone through foreclosure. Of course, 
it affects the overall housing market. It affects whether people will 
buy or build homes. Unless this cloud is removed from our housing 
market, then one of the pillars of the American economy has been shaken 
and may crumble.
  That is why we have called on the Treasury Department and this 
administration to step in as part of restructuring Fannie Mae and 
Freddie Mac to avert foreclosures. Now, the Mortgage Bankers 
Association--the group that brought us this subprime mortgage 
disaster--has been arguing not just for months, but for years, that 
voluntary efforts by financial institutions are enough, that these 
banks will come forward and help these families. But there is no 
evidence of that whatsoever; foreclosures still are occurring at a 
record historic rate.
  We cannot expect to emerge from this weak and failing economy until 
we address the root cause, which is the failure of the housing market. 
The Bush economic and tax policies have brought us to this disastrous 
moment--this moment where we have a Tax Code that rewards the 
wealthiest instead of helping middle-income families, a moment where 
the administration rushes to the rescue of the big banks but forgets 
American families who are struggling to keep a roof over their heads, 
struggling to protect the only asset they have in life against an 
economy that is making it difficult for them to survive.
  Foreclosures continue to skyrocket. We have set a new record high in 
the last quarter, according to the Mortgage Bankers' own data. The Hope 
Now Alliance, which is run by bankers with the support of this 
administration, is supposed to be riding to the rescue. But they don't 
require banks to do anything to help homeowners, but just gives them 
``guidelines.'' Let me tell you something: Guidelines will not save a 
home. Guidelines will not avoid foreclosure. Guidelines won't keep you 
out of bankruptcy. That is what many homeowners are facing.
  We tried, unsuccessfully, to convince this Senate and this 
administration to allow those homeowners facing bankruptcy and 
foreclosure to have one last chance in the bankruptcy court, to let the 
courts sit down with the bank and the family and try to find a way to 
keep them in their home. It was rejected. The ``sanctity of the 
contract'' is what we were told, we cannot violate the sanctity of the 
mortgage contract. Why, that would be unconscionable. It would shake 
the very foundations of the private sector economy in America.
  But what happened last week? What happened to the sanctity of the 
contract when our Government and taxpayers rode to the rescue of Fannie 
Mae and Freddie Mac? We decided there was a greater good. The greater 
good was stabilizing this economy, averting a disaster if these two 
agencies failed. We said we would step in and do something 
extraordinary for the good of America. Why is it we will step in with 
billions of dollars for the good of America when it comes to major 
banks and major financial institutions but consider it anathema, 
unacceptable, heretical to step in when it comes to helping a family 
save a home?
  That is the difference in the thinking here. When it comes to the 
priorities of this administration in Washington, those at the top, 
whether it is the banks or the CEOs of Fannie Mae and Freddie Mac, they 
always come out fine. They are always going to find themselves at the 
end of the day quite comfortable. But when it comes to helping working 
families--middle-income families who are struggling to get by--the 
policies of this administration have not been kind.
  This Hope Now Alliance still won't report to the public how many 
families are receiving real mortgage relief, through a reduction in 
what is owed. We can assume that not many are getting help. Now that 
Fannie and Freddie have been taken over by the Government, we can do 
something about it. These companies need to systematically restructure 
mortgages so we can prevent as many foreclosures as possible. Everyone 
wins if we do that. Families get to stay in their homes, taxpayers 
spend less money covering foreclosure losses, Fannie Mae and Freddie 
Mac reduce their future exposure to failed loans, and it is the right 
and smart thing to do. As our economy continues to struggle, we should 
take advantage of every opportunity we have to step in and help.
  Saving the taxpayers from overpaying failed CEOs and helping families 
stay in their homes and avoid foreclosure are two such opportunities. 
In this letter, I have urged the administration to seize both 
opportunities.
  On November 4, the American voters will have a chance to speak to the 
record of this administration, to decide whether we are going to make 
the change in Washington that is needed to steer a different course, to 
bring, I hope, a stronger economy. Many of us believe the strength of 
that economy and future of that economy is with the working families of 
this country, the middle-income families who struggle every day, pay 
their taxes, try to keep gasoline and groceries available, pay for 
college education and health expenses, and are having a hard time 
getting by. There hasn't been enough sensitivity in the actions and 
policies of this Congress or this administration when it comes to these 
families.
  The fact is we have a chance in this election to change things in 
Washington, to bring some new thinking, some new priorities, and some 
new values. Those values don't include multimillion dollar golden 
parachutes for failing CEOs, or putting banks as a priority above 
average working people who have always been the strength of this 
country. I certainly hope we have that opportunity and seize it on 
November 4.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Montana is 
recognized.

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