[Congressional Record Volume 155, Number 38 (Wednesday, March 4, 2009)]
[House]
[Pages H2951-H2953]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         HOUSING AND BANKRUPTCY

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
  Ms. KAPTUR. Mr. Speaker, please let me share with you concerns 
regarding the bill, H.R. 1106, on housing and bankruptcy that were 
rolled together, four bills rolled together into one likely to come 
before the House for consideration tomorrow.

                              {time}  1545

  First of all, the bill continues and reinforces the seriously flawed 
mortgage securitization approach to the U.S. housing market. The 
overarching concentration and securitization of the housing mortgage 
market by Wall Street bond houses and money center banks are continued 
in the bill rather than replaced by an approach that restores prudent 
Main Street lending practices again.
  Our housing finance system is far too concentrated. Its system-wide 
imprudent practices centered in the securitization process, itself, 
have done enormous damage domestically and internationally and have 
ripped neighborhoods and communities apart across our Nation. The bill 
and related administration actions adhere to and, indeed, expand Wall 
Street securitization as the fundamental architecture of our Nation's 
mortgage and loan financial system. The continuation of this risky and 
imprudent system has converted poorly underwritten, poorly appraised 
and poorly serviced mortgage loans, the majority a result of predatory 
lending practices to securitize bond instruments. Financial activity 
and equity have been drawn out of local regions and have been 
concentrated in a very few irresponsible and likely fraudulent, in many 
cases, Wall Street money center banks.
  The vast majority of troubled subprime mortgages are held by 
institutions whose names you know--JPMorgan, Bank of America, 
Citigroup, HSBC, Wachovia, Wells Fargo--and the proximate cause of the 
severe economic downturn our Nation is experiencing in the mortgage 
foreclosure crisis and its consequential seize-up of credit is due to 
the practices of those institutions.
  That seize-up is due to widespread uncertainty about valuing 
mortgages on the ledgers of those financial institutions and others 
across our country. Until that uncertainty is repaired by employing the 
skills of the Federal Deposit Insurance Corporation and by true value 
accounting at the Securities and Exchange Commission, any bill we might 
consider here merely bites at the edges of a systemic reform that will 
fall far short of what is needed. Any major housing bill may be 
evaluated by whether it contributes to reforming this fundamental 
financial architecture that has brought our economy to this point.
  Responsible lending requires that our financial system re-empower the 
local banking, local underwriting and local mortgage markets first. 
Such a reform plan should be a foundation stone that precedes any 
legislation that proposes to transfer hundreds of billions of dollars 
more to the very money center banks and servicing companies that have 
produced the chaos that ails our mortgage lending system. Reform must 
come first, not last. No matter how well-intentioned any housing bill 
is, there must be a broader policy context in which it is advanced.
  Number 2, the vast majority of people in foreclosure are not in 
bankruptcy. Different regions of our Nation are likely to be impacted 
differently, and this bill will not help them, and I place in the 
Record plenty of information about that.
  Number 3, the bill will not bring private-sector lenders back to the 
mortgage market. Thus, it will not restore confidence across the 
troubled credit markets. You could see that the President announced the 
program last

[[Page H2952]]

month, and the market has already discounted it; the dollar has been 
further driven down, and our stock markets are even weaker.
  Number 4, the bill actually cherry-picks mortgage winners and losers 
while cramming down the bankruptcy option for others, denying equal 
justice under property law to all. The bill throws the far larger 
numbers of homeowners with non Fannie Mae and Freddie Mac troubled 
loans to the bankruptcy courts, almost like a cramdown, presuming their 
culpability, while doing nothing to ascertain lender and servicer 
performance or even guilt in the mortgage contract. In doing so, the 
bill denies millions of our citizens immediate, full legal rights and 
representation in legal proceedings.
  Number 5, irresponsible and likely fraudulent lenders and servicers 
should not be rewarded with any more taxpayer-funded money as the bill 
does. Again, we should be using the FDIC and the SEC as they were 
properly intended, and that is not being done.
  You know, one of the questions we can ask under this bill is: How 
will Treasury and HUD pick who gets principal awarded and who doesn't 
under this bill to try to work out a few of the loans that are out 
there?
  Number 6, this proposal creates a future private market incentive to 
dump troubled loans to Fannie Mae and Freddie Mac that does not restore 
the market discipline that is necessary.
  Number 7, there are no provisions in the bill to recoup funds to the 
U.S. taxpayer for the significant cost of this bill. The banks, 
actually, in one provision in the bill will get a little bit if a 
mortgage appreciates in value once it's sold, but the government will 
get nothing.
  Finally, the cost estimates of this bill are truly questionable. The 
administration says maybe it might cost $275 billion, but in truth, 
that is only a guess. If home values continue to plummet and the plan 
does not succeed in whole or in part, it is likely that the cost of the 
bill will be much higher. What about if Freddie and Fannie loans 
redefault? Already, the administration is asking for another $400 
million of additional guarantee authority in those instrumentalities.
  In sum, our citizens deserve full justice, not a continuing reliance 
on the very institutions that brought us to this fork in the road.
  Mr. Speaker, tomorrow, the House is scheduled to vote on H.R. 1106
  Please let me share with you 8 concerns I have regarding the 4 bills 
that have now been rolled into one to address the mortgage foreclosure 
crisis and its bankruptcy provisions.
  The first concern is the bill continues, and reinforces, the 
seriously flawed ``mortgage securitization'' approach to the U.S. 
housing market.
  The overarching concentration and ``Securitization of the housing 
mortgage market by Wall Street'' bond houses and money center banks are 
continued rather than replaced by an approach that restores ``Main 
Street Prudent Lending'' practices. Our housing finance system is far 
too concentrated. Its system-wide imprudent practices, centered in the 
securitization process, have done enormous damage domestically and 
internationally, and have ripped neighborhoods and communities apart 
across our nation.
  This bill, and related Administration actions (e.g., the SBA loan 
securitization provisions of the Recovery Act) adhere to and, indeed, 
expand ``Wall St. securitization'' as the fundamental architecture of 
our nation's mortgage and loan financial system. The continuation of 
this risky and imprudent system has converted poorly underwritten, 
poorly appraised, poorly serviced mortgage ``loans''--the majority a 
result of predatory lending practices--to securitized ``bond'' 
instruments. Financial activity and equity have been drawn out of local 
regions and concentrated in a few very irresponsible, and likely 
fraudulent, Wall Street and money center banks. A handful of these 
investments houses, which have brought our nation to the financial 
edge, have converted very recently to bank holding companies to come 
under the cover of federal insurance protection.
  The vast majority of troubled subprime mortgages are held by the 
following irresponsible, money center institutions or subsidiaries they 
created--JP Morgan Chase, Bank of America, Citigroup, HSBC, and 
Wachovia, Wells Fargo. The proximate cause of the severe economic 
downturn our nation is experiencing is the mortgage foreclosure crisis 
and consequential seize up of credit across our nation's financial 
system. This is due to widespread uncertainty about valuing mortgages 
on the ledgers of financial institutions. Until that uncertainty is 
repaired, any bill that merely bites at the edges of systemic reform 
will fall short of what is required.
  Any major ``housing'' bill must be evaluated by whether it 
contributes to reforming this fundamental financial architecture that 
has brought our economy to this point. If not, it will not restore a 
rigorous and prudent lending model for home loan origination and 
servicing, with disciplined secondary markets. If reform does not 
occur, financial power will continue to be concentrated on Wall Street 
and money center institutions, and equity drawn away from to local 
communities. Responsible lending requires that our financial system re-
empower the local banking, underwriting, and mortgage markets. Such a 
reform plan should be the foundation stone that precedes any 
legislation that proposes to transfer hundreds of billions of dollars 
more to the money center banks and servicing companies that produced 
the chaos that ails our mortgage lending system. Reform must come 
first, no last. No matter how well intentioned any housing bill, there 
must be a broader policy context in which it is advanced.
  The 2nd concern is the vast majority of people in foreclosure are not 
in bankruptcy. Different regions of our nation are likely to be 
impacted differently. This bill will not help them.
  The bill's partial and confusing approach to who will be helped, and 
who will not be helped in their housing situation, will exacerbate the 
economic crisis, not ease it. Far from being a systemic solution to the 
housing credit and foreclosure crisis, this bill cherry picks some 
``winners'' who will achieve mortgage workouts. The anticipated Obama 
plan will address only some mortgage holders whose mortgages happen to 
be held by Fannie Mae and Freddie Mac. The majority of mortgages not 
held by Fannie Mae and Freddie Mac will not be addressed by the Obama 
plan. This omission represents the vast majority of subprime, troubled 
mortgages in our nation. Federal taxpayer-funded subsidies, thus, will 
flow to help workout only those loans held by federally guaranteed 
secondary market instrumentalities.
  Furthermore, the complexity of this bill means as well as the Obama 
plan any benefits are likely to be uneven rather than systemic. Some 
loans owned by Freddie and Fannie will be targeted; the vaster number 
of subprime loans will not be considered. In regions like Ohio, where 
the recession has worn on and deepened over this decade, it is unclear 
who may benefit. At best there are rough estimates available now, state 
by state, as to how many loans may be eligible or affected. Most of the 
borrowers who aren't in either FNMA/Freddie will be out of luck in the 
Obama plan. States like Ohio and Michigan could be absent workout 
assistance again, or with minimal impact, as they have been under the 
Hope for Homeowners Bill, rushed through Congress last July, wherein 
only 25 homeowners have been assisted. It is conceivable that many 
greedy consumers, whose loans happen to be owned by Fannie and Freddie, 
could be helped, while the majority of families in states like Ohio, 
where foreclosures are rising, will not get help as their loans are 
largely subprime. What is fair about this?
  The 3rd concern is the bill will not bring private sector lenders 
back into the mortgage market. Thus, it will not restore confidence 
across the troubled credit markets.
  Why? This bill is uneven, lacks clarity, and is even confusing in 
picking who might be assisted, and who might not be assisted. Thus, the 
bill will cause more market disruption. As in the Obama plan's 
announcement last month, it was discounted by the market and already 
has further driven down the value of the dollar and our stock markets. 
The market knows this bill will not address the fundamental problems of 
seized credit markets and lack of interbank confidence plaguing our 
banking system.
  The 4th concern is the Obama plan cherry picks mortgage winners and 
losers, while this bill crams down the bankruptcy option for others, 
denying equal justice in property law to all. As a last resort this 
bill throws homeowners to the bankruptcy courts--almost like a cramdown 
presuming their culpability--while doing nothing to ascertain lender 
and servicer performance, and even guilt, in the mortgage contract. In 
so doing, the bill denies millions of our citizens full legal rights 
and representation in legal proceedings about their Mortgage contract--
as well as a complete mortgage audit. The courts should weigh the 
interests of all parties in the mortgage contract. Normal judicial 
proceedings could yield that. The bankruptcy option relegates normal 
judicial proceedings to second place to determine lender culpability. 
Mortgagors need primary attention not secondary and equal legal 
representation when confronting Wall Street megabanks and servicers, as 
mortgage fraud and predatory practices pervaded the sick housing system 
America faces today. This bill throws citizens into bankruptcy court 
before real justice and transparency of the mortgage instrument as a

[[Page H2953]]

contract is unwound in a court of law. Are borrowers the only party to 
the mortgage contract? The bill does not provide equal justice as 
lenders, banks, and servicers responsible are held harmless legally, 
and some even provided funding. What unequal justice is this?

  The 5th concern is irresponsible and likely fraudulent lenders and 
servicers should not be rewarded with more taxpayer-funded money, as 
the Obama plan does. The normal federal institutions skilled in 
mortgage workouts, and bank insolvencies, should be engaged--the 
Federal Deposit Insurance Corporation and the Securities and Exchange 
Commission.
  Lenders and servicers should be required by legislation to 
participate in mortgage workouts. Our government shouldn't be paying 
lenders or servicers anything to get them to participate. It is likely 
mortgage and accounting fraud were endemic across several institutions, 
as well as lack of proper reporting back to mortgagors under the Truth 
in Lending and Real Estate Practices Act. Frankly, workouts systemwide 
should have been occurring in the time-proven way--by engaging FDIC's 
full powers along with updating the SEC's approach to true value 
accounting for real estate loans held on the books of lenders. As this 
still is not being done, the economic harm gets worse daily. The TARP 
Bailout gave power to the wrong federal department to handle real 
estate workouts. Treasury had had no experience in real estate lending. 
Treasury has never been the appropriate federal agency to do bank and 
mortgage workouts. Its focus has always been Wall Street. Their record 
since TARP has demonstrated they have done nothing to get the banks and 
servicers to the table to do workouts as a result of the billions the 
banks have received from TARP. Now, under the Obama plan, how will 
Treasury and HUD pick who gets principal funds and who doesn't?
  The 6th concern in the Obama plan creates a future private market 
incentive to dump troubled loans to FNMA and Freddie.
  In the way this legislation favors loans held by FNMA and Freddie 
Mac, it does not restore prudent lending rigor to the marketplace, but 
signals that the government will become the dumpster for troubled 
loans. Again, this bill's architecture sends the wrong message to the 
market.
  The 7th concern is there no provisions in the Obama plan to recoup 
funds to the U.S. taxpayer for the significant cost of the bill.
  Any federal assistance to homeowners should include provisions to 
recoup to the government some portion of the appreciation of any 
housing assets that may be available on sale of affected units. The 
Obama plan does provide such recoupment to the bank, in the case of 
reworked FNMA/Freddie loans, but not to the government which is 
assuming a huge additional guarantee risk. The Administration plan is 
silent on such recoupment to the U.S. government.
  The 8th concern is the cost estimates for the Obama plan are 
questionable.
  Cost estimates provided by the Administration total at least $275 
billion. But, in truth, they represent only a guess. If home values 
continue to plummet, and the plan does not succeed in whole or part, it 
is highly likely the cost of the plan will rise much higher. Further, 
it is highly uncertain whether many Freddie and FNMA loans will not 
redefault, increasing long term costs. Already, the Administration is 
requesting increased guarantee authority on both be raised a total of 
$400 billion more. An overriding concern remains that most subprime 
loans at the heart of the foreclosure crisis are not held by FNMA/
FreddieMac. Lack of resolution in that segment of the market will 
further pull down home values and exacerbate the situation. To add some 
perspective, there is a real question as to whether the $75 billion 
dedicated to loan modifications will be significant enough to right the 
market. Ohio alone needs $20 billion to fill its housing finance gap. 
This plan might help places like California where the housing bubble 
burst but its impact in Ohio is unclear, where the recession has 
dragged on for 8 years. People need adjusted home mortgage, and even 
rent-to-own rental schedules. These must be negotiated one by one. The 
Administration plan will not help the vast majority of underwater 
homeowners because their plan is not systemic in its approach.
  In sum, this bill and the Obama plan do little to nothing to address 
the fundamental cause of crisis--widespread and overuse of concentrated 
securitization practices, mortgage and appraisal fraud, and the seize 
up of credit markets due to improper use of federal instrumentalities 
in attempting to resolve the situation.
  Our citizens deserve full justice, not continuing reliance on the 
very institutions that brought us to this fork in the road.

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