[Congressional Record Volume 155, Number 185 (Thursday, December 10, 2009)]
[Extensions of Remarks]
[Pages E2943-E2944]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         WALL STREET REFORM AND CONSUMER PROTECTION ACT OF 2009

                                 ______
                                 

                               speech of

                           HON. CHAKA FATTAH

                            of pennsylvania

                    in the house of representatives

                      Wednesday, December 9, 2009

       The House in Committee of the Whole House on the State of 
     the Union had under consideration of the bill (H.R. 4173) to 
     provide for financial regulatory reform, to protect consumers 
     and investors, to enhance Federal understanding of insurance 
     issues, to regulate the over-the-counter derivatives markets, 
     and for other purposes:

  Mr. FATTAH. Madam Chair, I rise in strong support of H.R. 4173, the 
Wall Street and Consumer Protect Act of 2009. The bill proposes to 
address the financial crisis brought on by the financial industry by 
crafting a comprehensive set of measures that will modernize America's 
financial regulations and hold Wall Street accountable. A myriad of 
issues, from predatory lending to unregulated derivatives, are 
contained in the bill to prevent conditions that led to last year's 
financial meltdown.
  The legislation being considered today outlaws many of the egregious 
industry practices that marked the subprime lending boom, and it would 
ensure that mortgage lenders make loans that benefit the consumer. H.R. 
4173 establishes a simple standard for all home loans, mandating that 
institutions must ensure borrowers have the ability to the loans they 
are sold. In addition, the bill prohibits the financial incentives for 
subprime loans that encourage lenders to steer borrowers into more 
costly loans, including the bonuses known as ``yield spread premiums,'' 
which lenders pay to brokers to inflate the cost of loans. Many 
homeowners in the current mortgage crisis received were steered into 
more expensive loans than they qualified for. The bill limits the 
prepayment penalties charged to borrowers who wish to get out of their 
loans and refinance on more affordable terms.
  Implementing laws to correct the failures that led to the economic 
conditions that created the worse financial crisis since the Great 
Depression is important in ensuring the ensuing calamity that 
transpired after the collapse of the financial markets. Nevertheless, 
the Chairman's inclusion of a mortgage foreclosure assistance provision 
in the Chairman's Manager's Amendment brings to light one of the least 
discussed causalities of the financial disaster. Many homeowners now 
find they are unable to meet their financial obligations due to the 
severe recession caused by the unbridled greed and recklessness of many 
financial services institutions.
  On numerous occasions, President Obama declared the road to recovery 
must begin with correcting the damaged housing market by providing 
people the tools necessary to keep their homes and prevent foreclosure. 
According to a recently released report by RealtyTrac, a realty company 
that maintains a comprehensive national database of pre-foreclosure and 
foreclosure properties, nearly 400,000 properties received foreclosure 
filing in August 2009. Though number of filings decreased less than one 
percent from the previous month, the overall number of foreclosure 
filings is nearly 18 percent higher than the previous year. More 
strikingly, the report also indicates 1 in every 357 properties used 
for housing are under threat of foreclosure.
  Although not all homes in the foreclosure process will end in a 
foreclosure completion, an increase in the number of loans in the 
foreclosure process is generally accompanied by an increase in the 
number of homes on which a foreclosure is completed. According to the 
Mortgage Bankers Association, about 1 percent of all home loans were in 
the foreclosure process in the second quarter of 2006. By the second 
quarter of 2009, the rate had quadrupled to over 4 percent.
  Traditionally, housing is considered a relatively safe investment 
that allows for the possibility for a high rate of return. Rapidly 
rising home prices reinforced supported this view. During the rapid of 
expansion of housing in the early part of this decade, many people 
decided to buy homes or take out second mortgages in order to access 
their increasing home equity. Furthermore, rising home prices and low 
interest rates contributed to a sharp increase in people refinancing 
their mortgages. For example, between 2000 and 2003, the number of 
refinanced mortgage loans jumped from 2.5 million to over 15 million. 
In 2006 and 2007, the value of housing dropped precipitously, which 
triggered an unexpected increase in the number of homeowners that were 
delinquent on their mortgages payments and facing foreclosure.
  Mortgage foreclosures are very costly to both the foreclosed 
homeowner and the mortgage lender. Lenders suffer revenue losses from 
uncollected interest on delinquent loans, as well as unrecoverable 
origination costs and fees. Though loans that are insured under the 
Federal Housing Act mitigates losses to lenders to a certain extent, 
foreclosures cost the lending industry approximately $32,000 for every 
home that is in foreclosure proceedings since foreclosed properties are 
often sold below market value.
  Losing a home to foreclosure can have a number of negative effects on 
a household. For many families, losing a home means losing the 
household's largest store of wealth. Furthermore, foreclosure can 
negatively impact a borrower's creditworthiness, making it more 
difficult for him or her to buy a home in the future. Finally, losing a 
home to foreclosure can also mean that a household loses many of the 
less tangible benefits of owning a home. Research has shown that these 
benefits include increased civic engagement that results from having a 
stake in the community, and better health, school, and behavioral 
outcomes for children.
  In addition, many homeowners experience difficulty finding a place to 
live after losing their home to foreclosure. Many will become renters. 
Nevertheless, some landlords may be unwilling to rent to families whose 
credit has been damaged by a foreclosure, limiting the options open to 
these families. There can also be spillover effects from foreclosure on 
current renters. Renters living in units facing foreclosure may be 
required to move, even if they are current on their rent payments. As 
more homeowners become renters and as more current renters are 
displaced when their landlords face foreclosure, pressure on local 
rental markets may increase, and more families may have difficulty 
finding affordable rental housing. Some observers have also raised the 
concern that a large increase in foreclosures could increase 
homelessness, either because families who lost their homes have trouble 
finding new places to live or because the increased demand for rental 
housing makes it more difficult for families to find adequate, 
affordable units.
  A concentration of foreclosures will negatively impacts communities, 
not just homeowners facing foreclosure. Many foreclosures in a single 
neighborhood may depress surrounding home values. If foreclosed homes 
stand vacant for long periods of time, they can attract crime and 
blight, especially if they are not well-maintained. Concentrated 
foreclosures also place pressure on local governments, which can lose 
property tax revenue and may have to step in to maintain vacant 
foreclosed properties.
  Unforeseen events can happen to all people, in all communities. 
Unexpected medical expenses, sudden unemployment, and divorce are only 
some of the myriad of unforeseen circumstances that can create 
financial instability for hardworking homeowners. Such hardships are 
frequently cited as significant contributing factors that hinder a 
homeowner's ability to maintain timely mortgage payments, ultimately 
resulting in dramatically higher rates of mortgage foreclosure. 
Homeowners in America face the added pressure of simultaneously 
handling the financial burdens of unforeseen events and their mortgage 
obligations.
  Making Home Affordable, the new Obama plan which requires lenders to 
modify mortgages, is a good idea that is off to a slow start as lenders 
have yet to gear up for or aggressively seek modifications to those 
eligible. Foreclosures caused by unemployment are becoming a greater 
and greater portion of the foreclosure problem. Estimates are that 5.5 
million homes will enter foreclosure in 2009 and 2010.
  In Pennsylvania, a major state initiative to combat family-
devastating foreclosures has been operating with success for more than 
a quarter-century, enacted in the wake of the severe recession of 1983. 
The Homeowners Emergency Mortgage Assistance Program (HEMAP) has 
provided loans to over 43,000 homeowners since 1984 at a cost to the 
Keystone State of $236 million. Assisted homeowners have repaid $246 
million to date which works out to a $10 million profit for the state 
after 25 years of helping families keep their homes.

[[Page E2944]]

  The Pennsylvania model will work nationally, and that is why I 
introduced H.R. 3142, the Homeowners Emergency Mortgage Assistance 
(HEMA) Act, which is pending before the House Financial Services 
Committee. HEMA establishes an emergency mortgage assistance program 
for qualifying homeowners who are temporarily unable to meet their 
obligations due to financial hardship beyond their control. Under HEMA, 
homeowners would have the opportunity to regain financial stability 
without the immediate pressure of foreclosure. With the support of 
Chairman Barney Frank of the Committee on Financial Services and 
Subcommittee Chairwoman Maxine Waters, the HEMA proposal was 
incorporated into H.R. 3766, the Main Street TARP Act. The Main Street 
TARP Act proposes to use unspent TARP funds to provide relief for 
distressed homeowners who are unable to meet their mortgage obligations 
due to financial hardship, as well as providing assistance to renters 
seeking affordable housing.
  A national HEMA program offers a workable complement to President 
Obama's new Making Home Affordable program. Making Home Affordable has 
allocated $75 billion in TARP funds to provide financial incentives to 
encourage participation by mortgage servicers and homeowners. Although 
the Treasury Department is taking steps to increase the effectiveness 
of Making Home Affordable by pressing mortgage servicers to put 
additional resources and staff into providing loan modifications that 
make mortgages affordable for homeowners, the scale of the problem is 
huge and the ability and willingness of servicers to do the work 
necessary is in question. The loss of six million US jobs since the 
start of the recession complicates the crisis as many jobless won't 
even have enough income for a loan modification to be effective.
  A HEMA-style loan program could use TARP funds already allocated for 
foreclosure prevention to directly cure mortgage defaults for the 
unemployed. As the economy recovers most jobless workers will get back 
to work and be able to resume their mortgage payments. Even a portion 
of the $75 billion set aside for Making Home Affordable could pay a lot 
of mortgage payments to bring homeowners current and not have them at 
the mercy of a mortgage servicer who is poorly equipped to offer them 
help.
  Such a program could be run much more efficiently than the time 
consuming loan modification program. A homeowner who indicated that he 
or she was unemployed would provide verification of unemployment 
compensation to the servicer and automatically be approved for a loan 
that would pay any mortgage above 31 percent of their income (the 
target amount in Making Home Affordable modifications). The Treasury 
could make payments for the homeowner who is then current on the 
mortgage. It would cut through the disorder of the loan modification 
program and slow the numbers of foreclosed properties on the market.
  The success of HEMAP is evident in the program's results. Since its 
inception, 42,700 families were saved from foreclosure by providing 
over $442 million in loans to at-risk homeowners. The average loan to a 
distressed homeowner is $10,500, which is much less than the $35,000 it 
costs to complete most foreclosure actions. Additionally, this 
estimated average foreclosure cost does not consider the impact of 
foreclosures on families, neighborhoods and communities.
  We have tried everything else. The Treasury has already allocated far 
more than $2 billion to prevent foreclosures. It seems likely that many 
of those dollars will not be spent in a timely manner by mortgage 
servicers modifying loans. It's time to get people's mortgages paid 
directly and to slow the pace of home losses that are destroying 
families and crippling our overall economy. It's time to think outside 
the box about foreclosures--and way past time to keep Americans inside 
their homes.

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