[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

[[Page S10442]]

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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