[Congressional Record Volume 156, Number 168 (Friday, December 17, 2010)]
[Senate]
[Pages S10441-S10443]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
The Gold Standard Among Mortgages
Mr. ISAKSON. Mr. President, on the 8th day of November of this year,
I, along with Senator Hagan from North Carolina and Senator Landrieu
from Louisiana, sent a letter to Secretary Donovan, Chairman Bernanke,
Acting Director DeMarco, Chairman Sheila Blair, Chairman Schapiro, and
Acting Comptroller Walsh, asking them to look closely at the 941(b)
requirements of the Dodd-Frank bill relating to risk retention and to
urge them to complete their work on carrying out the intent of that
legislation through the amendment that the three of us cosponsored to
create the exemption for risk retention requirements by the definition
of a qualified mortgage.
I rise today, on one of the final days in this Congress, to raise the
importance of this issue because of the current fragile condition of
the U.S. housing economy and, most importantly, to underscore what a
handful of Senators in this body did last summer in the financial
reform bill to begin to improve and strengthen the eroding lending
standards that got us into this position in the first place.
I ran a business for 22 years in residential housing in Atlanta.
During that time, the average default rate, or delinquent rate, was
about 3 percent on mortgages. The foreclosure rate was less than 1\1/
2\. Things have changed dramatically in the last few years because of
sloppy underwriting, no credit, and no documentation. We have seen some
unbelievable new numbers. To give you some perspective, according to
FDIC, in the third quarter of 2010, total mortgage delinquencies across
the country were about 10 percent of the market, or 1 in 10. In
Georgia, that number exceeded 12. In the 100-percent government-
guaranteed FHA market, the delinquency rate is just above 13 percent
and, sadly, in Georgia, in the third quarter that rose above 20
percent--1 in every 5.
We have mounting problems with growing housing inventory--problems
that are only made worse with excessive fees currently charged by
Freddie Mac and Fannie Mae, frankly, keeping many from being able to
refinance into a more affordable mortgage, therefore, becoming
delinquent and being foreclosed on.
I am extremely proud of the bipartisan provision that Senator Hagan,
Senator Landrieu, and myself added to the financial reform bill.
Earlier this year, I began working with Senators Landrieu and Hagan to
develop the concept of a qualified residential mortgage, QRM or, as I
call it, a ``new gold standard'' for residential mortgages, which
ultimately was included in the credit risk retention title of 941(b) in
the financial reform bill. While risk retention can serve as a strong
deterrent to excessive risk taken by lenders, it also imposes the
potential of a constriction of credit in the mortgage market.
I want to make this point clear. The risk retention provision of the
Dodd-Frank bill would require an originator of a mortgage to retain 5
percent of that mortgage as risk retention. As we all know, tier one
capital requirements by the banking system is only 8 percent for the
solid footing for the entire bank, and we were going to add another 5
to it just because they make mortgages. What is going to happen is that
very few mortgages will be made, and those that will be made will be
only the most pristine ones, not necessarily the ones that meet the
needs of middle America.
Likewise, our standard makes sure venturesome lending practice can
never become qualified residential mortgages. We specifically delineate
in the amendment that things such as balloon mortgages, no-doc loans,
drive-by appraisals, and interest-only loans, loans with huge
prepayment penalties, and negative amortization mortgages would never
be considered a qualified mortgage. Against those loans, you
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should require risk retention and additional security on the part of
the lenders.
But in terms of mainstream America, we need to go back to the good
old days of the 1960s, 1970s, and 1980s, where if you got a residential
mortgage, you had to get a letter from your boss saying that you had a
job, your bank had to certify that you had the money in the bank
account to pay the downpayment, your credit report had to be a good one
saying you could pay your mortgage, the appraiser had to use legitimate
information to appraise the house, and the underwriters had to match
your debt against your income to ensure that they weren't at too high a
risk. That is why in those wonderful days we only had 1.5 percent in
foreclosures and less than 3 percent in defaults.
But the easy underwriting that started in 2006, and then accelerated,
caused us lots of problems. That is what we are here to try to stop
today. I am optimistic that our amendment will be the first step to
correct the lending practices of the past and will set on a better path
in the future.
In the law, we instructed the regulators to use specific criteria in
conjunction with loan performance data to define the contours of the
quality residential mortgage exemption. As we said in our November 8
letter to the regulators responsible for writing these rules:
It was our clear legislative intent that, underwriting and
product features that data indicate a lower risk of default
must be considered. Prior to sponsoring the Amendment, we
were provided with analyses of loan level data that
demonstrated that loans that satisfy the elements set out in
our Amendment default less frequently and cure more often
than riskier loans. We understand that each of your agencies
have been provided with this analysis, updated to reflect
loan performance in 2010. In particular this analysis
demonstrates that historically tested standards, including
full documentation of borrower income and assets, reasonable
total debt-to-income ratios and restrictions on riskier loan
features, such as negative amortization and balloon payments,
significantly reduce the risk of default. In addition, for
loans with lower down payments that have combined loan-to-
value ratios greater than 80 percent, the protections
provided by mortgage insurance result in lower losses for
lenders and investors and fewer foreclosures for borrowers
than similar loans that lack insurance. The mortgage
insurance provision ensures that the qualified residential
mortgage exemption can serve those consumers that cannot
afford a 20 percent down payment while putting substantial
private capital at risk to drive underwriting discipline.
I am aware these agencies are actively engaged and meeting. I
recently received a response from the regulators assuring me that they
will be implementing our QRM legislation ``in a manner consistent with
the language and purposes of that section.'' It is my hope that these
regulators will follow the intent of the legislation, by ensuring a
broad spectrum of qualified borrowers will fit under the umbrella of
protection under the qualified residential mortgage safety and
soundness provisions.
I look forward to continuing to work with my colleagues on the other
side in the new Congress to help to continue to improve our system of
housing finance. It is with great anticipation that we await the
administration's plans to do with Freddie and Fannie.
I have my own ideas, which I have expressed on this floor. I look
forward to working with Chairman Tim Johnson and Ranking Member Shelby
in the months ahead.
The crisis we have experienced in large foreclosures and defaults,
the declines in housing values, and a protracted housing recession,
will only be cured in time when we return to a strong and vibrant
lending market, where qualified loans and borrowers come together to
fuel the housing market once again. Until that happens, I fear that the
recession and the recovery we are in will be protracted and will be
slow, and the American dream will still be out of reach of too many
Americans.
I yield the floor.
The PRESIDING OFFICER. The Senator from Missouri is recognized.
rare earth elements
Mr. BOND. Mr. President, I come to the floor today to talk about the
biggest problem no one's ever heard of--America's 100 percent
dependence on foreign countries for our rare earth needs--and to
introduce legislation that is an essential part of the solution.
If you are at all like me, you may be scratching your head over what
exactly are rare-earth metals?
To go back in time a little, more so for some than others, when you
were studying the Periodic Table in high school chemistry, rare-earth
elements are the metals you were told you would never have to worry
about.
Unfortunately, that is the problem--until recently, no one was
worrying about rare-earth elements.
But in fact, these metals are critical to U.S. economic and national
security.
Back to that high school chemistry class again, rare-earth elements
are metallic minerals that significantly enhance the performance of
other materials.
These elements are used in small amounts in about every advanced
industrial product--we are talking about a wide array of products that
Americans depend on every day--from MRI machines to cell phones to
computers.
In addition to being an essential component in everyday high-tech
products, rare-earth elements are also necessary to our defense
industrial base.
Precision guided missiles, secure communications, advanced jet
engines, unmanned aerial systems, smart munitions, stealth technology
and advanced armor all are rare-earth dependent systems and
technologies.
Rare-earth elements also hold unique chemical, magnetic, electrical,
luminescence, and radioactive shielding characteristics for
environmental and ``green technology'' applications--like hybrid car
engines.
Despite the importance of rare-earth elements, the United States is
currently 100 percent import-dependent for our rare-earth needs.
Let me spell that out for you--while the United States today is the
world's sole economic and military superpower, there is not a single
U.S. or North American company actively producing rare-earth elements,
metals, alloys or rare-earth magnets.
The United States Geological Survey, USGS, the National Academies,
and the National Materials Advisory Board have all determined that rare
earths are ``Strategic and Critical'' to U.S. Industry and National
Defense.
Yet, the U.S. is 100 percent import dependent upon these materials?
How could we have let this happen?
How could we let a critical component of our economy become beholden
to foreign entities?
Concerns about the world's dependence on rare-earth minerals are not
just some attempt to read the tea leaves about some futuristic problem.
In fact, the problems for some of our allies have already started.
Over the past several months, Japan has sounded the alarm over their
inability to acquire supplies of the rare earths to their companies.
What if our own Nation's ability to import rare-earth elements was
restricted or stopped all together?
According to a Government Accountability Office report, GAO, earlier
this year, it could take as long as 15 years to rebuild our rare-earth
industry.
Common sense tells us that--considering our dependence on rare-earth
metals--we don't have another day to waste.
That is what this bill I am cosponsoring today with my good friend,
and fellow retiring colleague, Senator Bayh, is all about.
Our legislation will promote the domestic supply and refinement of
rare-earth minerals.
It is time to take necessary actions to redevelop a domestic resource
of rare-earth elements.
A domestic resource that will ensure we protect our national defense,
technology-based industries, and the industrial competiveness of the
United States.
Currently, there are no active rare-earth production facilities in
the Western Hemisphere.
However, the Pea Ridge mine in Sullivan, MO, is one of two permitted,
but shuttered, mines in the United States.
It is here where, according to the U.S. Geological Survey, the
greatest concentrations of both light and heavy rare-earth elements
exist, particularly those needed for the defense industry.
Rare-earth ore, or oxides, extracted from these mines need to be
reduced into a more pure elemental state before being used by industry.
[[Page S10443]]
Redeveloping our rare-earth capabilities will be no easy task--in
fact, the hurdles for financing such a refinery are significant.
The cost to construct a modern rare-earth refinery capable of
supplying a U.S. consumption of 20,000 tons per year is estimated at
more than $1 billion.
I do not believe it is practical or desirable for the United States
to depend upon any single rare-earth mining company to supply our
Nation's rare-earth production or supply chain requirements.
This is why our legislation will require a feasibility study on
building a U.S. cooperative refinery to process rare-earth ores from
mines in the United States or other allied countries.
Such a cooperative, similar to our successful agricultural co-ops all
across rural America, will set the stage for the U.S. Government to
establish reserves and protect national security.
To brag on my home State for a minute--Missouri would be ideally
suited for the location of a cooperative refinery, given the importance
of the Pea Ridge deposit.
Missouri's experienced mining and minerals-processing workforce, its
favorable access and costs to the utilities needed to operate a
refinery and central location and transportation infrastructure all
make Missouri well positioned to help preserve our Nation's strategic
and economic security.
In dealing with the tremendous costs of establishing a production and
refining facility, the legislation would also provide the Department of
Defense $20 million to support the defense supply chain and also $30
million for the development of rare Earth magnets.
The time has come for our country to act and for this Congress--
certainly the next Congress--to take the necessary steps to secure our
economic and strategic future. By ensuring that our Nation has its own
domestic supply of rare Earths and the ability to process them, we
should be able to compete in the 21st century.
The bill Senator Bayh and I have introduced will do just that. While
introducing legislation during the last days of the lameduck may seem
like a ``Hail Mary,'' this issue is too important to continue to
ignore, and we felt it was necessary to launch a ``Hail Mary'' in hopes
there will be others of our colleagues who will catch it and run with
the ball in the next session of Congress--to mix up the metaphors
badly.
In fact, ignoring our growing rare Earth needs and the overseas
dominance and China's monopoly is how we got into this mess. Senator
Bayh and I have laid the groundwork for this bill, and I hope my
colleagues in January will call it back up and see it passed.
The bottom line is this: Just as we cannot afford to be dependent
solely on foreign oil cartels for our Nation's energy, counting on any
one or a few countries to supply all of America's rare Earth needs
crucial to our technological innovation and national security needs is
too risky a bet.
I thank my colleagues for listening. I hope they will take up the
ball in the next Congress and make sure we begin to deal with this very
important problem very seriously.
The PRESIDING OFFICER. The Senator from Massachusetts.
Mr. KERRY. Mr. President, let me just say, at this point, to the
Senator from Missouri, that I greatly appreciate the comments he made.
This question of our dependence on a whole series of things which
matter to our national security, including these rare minerals, is an
enormously important one, and I think he has done a good service to the
Senate to bring it to our attention. So I thank him for that.
Let me also say we are open for business. We would love to get going
on some amendments on the START treaty, and I look forward to the
opportunity to debate those amendments and, hopefully, have some votes
on them in the course of the afternoon.
Until such time as that may become a reality, I suggest the absence
of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. KERRY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
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