[Congressional Record Volume 155, Number 126 (Wednesday, September 9, 2009)]
[Senate]
[Pages S9174-S9175]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                              The Economy

  Mr. President, all of us understand we are in the midst of a 
recession. It has been known as the Great Recession, not as bad as the 
Great Depression, thank the Lord, but certainly not your average run-
of-the-mill economic downturn.
  Last week, the Labor Department reported that the unemployment rate 
has reached 9.7 percent, the highest we have had in 25 years. I 
remember the last time it was even higher because that was the year 
1982 when I was elected to Congress and the economy of my State was in 
terrible shape. The unemployment rate in Decatur, IL, where I was a 
candidate for Congress, was over 20 percent, and many communities had 
the same experience. I certainly hope this situation does not 
deteriorate to that level. There is evidence it is starting to turn for 
the better. But 216,000 Americans lost jobs last month, which brings 
the total number of jobs lost since this recession started in December 
of 2007 to 7 million Americans. Economists do not expect the job 
situation to stabilize until next year. So this Labor Day was not a 
great day of celebration for working Americans worried about their jobs 
and worried about their income.
  There is some hope that the economy is starting to turn. The 
administration expects to report this week that the stimulus bill, 
which we enacted earlier this year, will have created or saved 750,000 
jobs in just a few months. That is one reason the number of jobs lost 
in July was not as bad as other months. Mr. President, $300 billion of 
the stimulus money has been obligated or distributed through tax relief 
directly to working families. Those who come to the floor opposed to 
the President's stimulus bill are opposing his proposal which gave tax 
relief to working families. And $160 billion of that has already been 
spent, and more to follow, giving those families a fighting chance to 
deal with the expenses of daily life.
  In addition, the success of the recent Cash for Clunkers Program is 
expected to create or save 42,000 jobs over the second half of this 
year. We know this in Illinois because last week while I was home, 
while some of the political observers were criticizing cash for 
clunkers, the Chrysler plant in Belvidere, IL, announced it was going 
to bring back 850 employees and put them to work because the stock and 
inventory of Chrysler products had been depleted by this program. So 
don't tell me cash for clunkers did not breathe some life back into the 
automobile industry. There are 850 workers in Belvidere, IL, who could 
tell you just the opposite.
  Unfortunately, many sparks of economic regeneration are still being 
overwhelmed by the mutating disease at the center of our economic ills. 
If you remember, this recession really started in the housing market, 
and unfortunately it continues to grow there.
  As I pointed out many times in this Chamber, the economic crisis that 
began in the housing market is not going to get better and is not going 
to change until the housing markets in America stabilize. Families who 
are afraid they are going to lose their homes to foreclosure will not 
buy things they need. When families do not buy things, companies do not 
make things and people are laid off. It is just that basic. Since 12 
million people could lose their homes to foreclosure during this 
recession, there are a lot of people who could end up losing jobs, stop 
purchasing, creating even a deeper recession.
  Here is the tough part of where we are right now. It is now because 
people are losing their jobs that they are losing their homes. It is a 
vicious cycle. According to the Mortgage Bankers Association, 6 million 
loans were either past due or in foreclosure in the second quarter, the 
highest level ever recorded in the United States of America. Nearly one 
in eight borrowers is behind or in foreclosure, and well over half of 
these households in trouble are solid, sound borrowers. In Illinois, 14 
percent--one out of seven mortgages is in trouble since the second 
quarter of this year. And the scary part: we have not peaked yet when 
it comes to the foreclosure crisis. The reason? Millions of families 
are now underwater, meaning they owe more to the bank than their home's 
value.
  The best predictor of whether a house could fall into foreclosure is 
whether the homeowner has positive equity. Homeowners with a financial 
stake in keeping a home are far more likely to save it. The bad news, 
according to Deutsche Bank, is 14 million homeowners--over one-fourth 
of home borrowers in America--have negative equity; that is, over one-
fourth of all home borrowers are underwater with negative equity, and 
25 million homeowners, half of them, will be underwater when the prices 
stabilize in the first quarter of 2011. Home equity fell $5.9 trillion 
between 2005 and the end of 2008, likely to fall even further in 2009. 
These families are at serious risk of foreclosure. This is not a crisis 
that we pass through. Sadly, it is a crisis we are living through and 
entering into a new phase.

  One more problem: A new wave of mortgages is coming up later this 
year. These mortgages are facing a reset. They are called option arms. 
They are soon going to dwarf subprime loans in size. These loans 
allowed the borrowers to pick what they wanted to pay each month, even 
if they wanted to pay less than the principal amount owed. Forget the 
interest. Under these terms you didn't even have to keep up with the 
principal payments. Of course, you have to catch up when the initial 
reset hits.
  Fitch Ratings estimates $134 billion in option arms will reset in the 
next 2 years, even as unemployment remains high. What began as a risky 
subprime mortgage crisis has now morphed into a solid prime mortgage 
and crazy option-arm crisis. What began as an underwriting problem is 
now an income problem. What began as a rate reset challenge is now also 
a negative equity nightmare.
  If we want to turn this economy around, we must attack this problem 
with everything we have. Imagine this financial sector which dreamed up 
these ways of financing homes--luring people into homes that were way 
beyond them, now facing a recession and foreclosures on those same 
loans and mortgages--has now refused to cooperate in dealing with this 
issue. They have washed their hands of it. They have made their money 
and now they want to walk away from it.
  Sadly, what we are doing now in this country isn't enough. Two years 
after the cruelly named Hope Now Alliance was launched by then-
Secretary of the Treasury and the big banks, the response to this 
crisis is awful. As Congress has looked on with a hands-off attitude, 
millions of our constituents have been thrown out on the street by the 
same banks that drove us into this economic ditch. I give credit to the 
Obama administration for creating a targeted program called the Home 
Affordable Modification Program which, if implemented aggressively, 
could save at least some of the families at risk. But even this modest 
effort has been stymied by the absolute failure of

[[Page S9175]]

the banks to aggressively implement it.
  Under this program the banks get paid--bribed really--with several 
thousand dollars for every mortgage they modify to keep families in 
their homes. Let me tell you what the data released by the Treasury 
Department this week tells us about this program which gave money to 
banks to renegotiate mortgages. Only 125,000 modifications under this 
program were started last month by the mortgage servicers, even though 
nearly 3 million homeowners were eligible for these modifications.
  Let me do the math--125,000 out of 3 million. If I understand that 
correctly, we are dealing roughly with \1/24\th of those who were 
eligible for modification who actually got help. That is about 4 
percent.
  Bank of America has started modifications with just 7 percent of 
their homeowners that were eligible; Wells Fargo, only 11 percent; 
American Home Mortgage Servicing has nearly 100,000 troubled borrowers 
eligible for mortgage modification offers yet less than 1 percent of 
these borrowers have even received an offer.
  The situation is deplorable. If the banks don't start offering money 
and modifications to these families, perhaps Congress needs to make the 
banks some offers they can't refuse. We have tried this voluntary 
approach for too long and it has failed. The banks are not voluntarily 
going to step up to this responsibility of negotiating and 
renegotiating a mortgage so people can stay in their homes. Maybe we 
should fine banks for not following the administration's plan rules. 
Maybe we should provide matching funds for States and municipalities 
that decide to require mandatory face-to-face arbitration between a 
bank and a homeowner before a bank can ask for a foreclosure. Maybe we 
should ensure families have the right to rent their home after a bank 
takes it over until the home can be sold. And maybe we should look 
again to changing the Bankruptcy Code to allow judges to help families 
save their primary loans.
  This is called cram-down by its critics, but it is a basic change in 
bankruptcy law, which I have brought to the floor of the Senate twice 
and lost. I lost because the banks said: Don't worry about it, we are 
going to take care of this. They are not. The situation is getting 
worse by the day.
  Last week I was in Chicago and went to an area known as Marquette 
Park on the south side of the city. I have been visiting that 
neighborhood for years. It has changed a lot. Originally it was an area 
where many Lithuanian Americans settled. My mother was an immigrant 
from Lithuania, and I used to take her there when she was alive. We 
would go to the bakeries and restaurants, and it was a wonderful 
neighborhood. It has changed many times. It is now primarily a Black 
and Hispanic neighborhood. As you visit some of the folks who have 
lived in that neighborhood for 10, 15, 20 years now, you see a lot of 
proud homeowners.
  I met a family--a man who said he had been in his home 19 years. 
Obviously, he was retired. His wife was there. They had a well kept, 
neat yard. I talked to him about his street because right across the 
street from him was an eyesore that no one would want to wake up to 
every morning. It was a brand-new home built and abandoned about 2 
years ago. It had been boarded up and vandalized. They had ripped out 
all the copper plumbing and anything they could take out of it. It was 
a home that, sadly, had become a haven for homeless people and 
vagrants, drug activity, and gangs. Welcome to my neighborhood.
  I thought about this poor man, who had devoted his whole life to his 
little home that he loved, and that he and his wife were keeping so 
neat, now had to look across the street to that mess every morning for 
2 straight years. It wasn't the only home on the block. Three doors 
down there was another one, all boarded up and falling apart; a few 
doors down the other direction, exactly the same thing.
  I went through this area with a community group called SWOP--
Southwest Organizing Project. They work with a lot of churches and 
individuals trying to keep people in their homes. I asked: What is the 
problem? Well, they said, we have some major banks that are holding 
these mortgages in foreclosure and won't lift a finger.
  Deutsch Bank, you hear about Deutsch Bank. Don't they sponsor tennis 
or golf or something? I can't keep up with their image building. But I 
can tell you they are not building their image in this neighborhood in 
Chicago. They are nowhere to be found. They are not even talking to 
these people about their homes.
  U.S. Bank out of Minnesota, another situation, similar situation. We 
don't have buy-in by these banks to help these families. They would 
much rather let these homes go into foreclosure--bank ownership, as 
they call it--and sit there rotting, destroying these good 
neighborhoods in the city of Chicago, bringing down the value of the 
homes around them, creating crime havens for those who use these 
abandoned homes. They are nowhere to be found.
  What is the answer, Mr. President? The answer is we have asked these 
banks and many others to volunteer to solve the problem. Guess what. 
There aren't enough hands going up, not enough banks volunteering. A 
few of them are starting to try, and I want to give credit to Bank of 
America, which is working with SWOP and others to try to renegotiate 
mortgages, but it is still a halfhearted effort. They could do a lot 
more.
  I could go through the long list of banks, including banks that I 
have worked with in the past and thought pretty highly of. They aren't 
getting involved. There is no reason for them to because our government 
and our Congress tell them they do not have to, and they do not. Well, 
that has to change.
  All told, I hope this economy recovers quickly and that Americans can 
get back to work. I don't think it is going to happen until the housing 
market stabilizes. If the banks will not help us get that done on their 
own, it is time to consider something radical--a change in the law. 
Where would be a good place to start with the change in the law? How 
about the Senate? How about the Senate making the Bankruptcy Code so 
that a judge can say to that bank owning that home: Incidentally, the 
last stop in bankruptcy is my courtroom. If you don't sit down and 
negotiate with that homeowner, who still has a job and still can make a 
payment, this court is going to impose new terms in terms of principal 
and interest.
  Does that sound like a radical idea? It is not radical if you are 
talking about a second home because the bankruptcy court can already do 
that. It is not radical if you are talking about a vacation home 
because a bankruptcy court can already do it. But under our law they 
cannot touch that primary residence. It is a bad idea, and as a result 
the banks and their lobbyists have prevailed twice on the floor of the 
Senate. They rolled over this effort to reform, and they sit there and 
watch America's neighborhoods, America's communities, America's towns 
and cities deteriorating before our eyes.
  Well, the lesson is clear for the Obama administration, for Secretary 
Geithner, and others. Waiting for these banks to act voluntarily, to 
show good faith in dealing with our foreclosure crisis is not paying 
off. It is time for the Senate to step forward, show its own leadership 
when it comes to dealing with this national housing crisis.

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