[Congressional Record Volume 161, Number 115 (Wednesday, July 22, 2015)]
[Senate]
[Pages S5448-S5451]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DODD-FRANK BILL
Mr. BROWN. Mr. President, during the financial crisis, $13 trillion
in household wealth was erased. Nine million jobs were lost, and 5
million Americans, 5 million families and individuals lost their homes.
The financial services industry has bounced back, and far too many
American families have not.
While many in Washington may have forgotten the financial crisis,
millions of Americans haven't forgotten how predatory lending practices
contributed to the housing bubble and helped spark this crisis. For
them, this was the crisis.
Unscrupulous lenders offered loans that required no documentation,
loans with teaser interest rates that later spiked and undermined a
borrower's ability to repay, and loans where borrowers never paid down
their principal. Borrowers with these higher cost loans were foreclosed
upon at almost triple the rate of borrowers with conforming 30-year
fixed-rate mortgages.
The crisis revealed a host of other harmful practices, such as
steering borrowers to affiliated companies, kickbacks for business
referrals, inflated appraisals, and loan officer compensation based on
the loan product that they peddled. These practices offered little
benefit to the borrower. They were not about helping those families
purchase a home they could afford. It is no coincidence that as
borrowers' costs increased, so did loan officers' compensation.
These abuses didn't start in 2007 and in 2008. In many communities,
predatory lenders began moving in a decade or more before the crisis.
In Ohio, the housing crisis was a slow burn rather than the boom and
bust cycle that happened in States such as California and Arizona. From
1995 to 2009--think about this--my State of Ohio had 14 consecutive
years where there were more foreclosures than the years before. For 14
years in a row, the number of foreclosures went up and up and up--14
years in a row.
My wife and I live just south of Slavic Village in Cleveland, ZIP
Code 44105. I mention that ZIP Code because in 2007, that ZIP Code had
the highest foreclosure rate of any ZIP Code in the United States of
America. This wasn't because of speculation. This was a declining
industrial base, and this was the kind of predatory lending that tended
to settle and sink its talons into communities like Slavic Village.
Government policies favoring finance over manufacturing caused steel
mills across Northeast Ohio and the rest of the country to shut down
and force people to look elsewhere for work. Between 2000 and 2010, the
population of Slavic Village dropped 27 percent, down to 20,000 people,
and then the subprime lending industry moved in. By 2006 more than 900
of Slavic Village's 3,000 properties--900 out of 3,000--were in
foreclosure. If the home next door to you is foreclosed on and
abandoned, you can bet the value of your home begins to decline 2
percent, 3 percent, 4 percent, and then the one across the street and
then one down the street. One can see what happens to this
neighborhood. One in three Ohioans in the height of the crisis--one in
three Ohioans' mortgages were underwater. One in every seven
mortgageholders was 30 days delinquent or in foreclosure.
Behind every foreclosure is a painful conversation. We don't think
much about that here. We think of numbers, policies, and statistics.
But imagine if you are a mother or father, and you have a 12-year-old
or 13-year-old son and daughter. First, the mother loses her job.
Things change around the house. You begin to cut back on things. You
begin to take money out of the college fund to send your kid to
Cuyahoga Community College. Then the husband loses his job. Then you
have to have that discussion. There were 5 million discussions like
these that went on in these homes where there were foreclosures. You
have to explain to your son or daughter: We aren't going to be living
here. We can't afford this house. We are leaving the neighborhood. You
are probably going to a different school. We don't know where we are
moving. We are going to have to find a new place to live. Maybe we are
going to have to give away the family pet. There is a shelter in Parma,
OH, that went from 200 to 2,000 dogs and cats that they were housing
because so many people gave up their pets because of the foreclosures
that so many families endured.
We came together as a result to pass Wall Street reform so families
would no longer be forced to upend their lives because a mortgage
company preyed upon them. Dodd-Frank established a commonsense rule
that requires lenders to ensure that borrowers have the ability to
repay their home loans. We created a consumer protection bureau to make
sure that never again would consumers be an afterthought.
Much of the CFPB's important work has centered around mortgage
regulation. Their rule to streamline forms will help inform consumers
to understand what is happening at the closing table.
The ability to pay. A qualified mortgage rule balances the need for
mortgage credit with the need of documentation of income and other
borrower protections.
We know there is more to be done. We must ensure that small lenders
and community institutions can remain competitive. We know how bank
concentrations become more and more of a problem. We must provide
homeowners with protections from a broken servicing model that has
harmed so many of our communities. We must ensure broad access to
affordable housing--the right thing to do for families and communities.
We must move forward. We know there will be a clear choice.
As we move forward, we know there are two paths to follow. We can
accept the false narrative that inaccurately blames low-income
borrowers in the Federal programs, FHA, VA, to maintain their
underwriting standards during the boom. In other words, we can blame
the victim. We can say: Oh, it was the homeowners who caused this. It
was the people who got the mortgages. It was all their fault. They
weren't smart enough and they were so irresponsible. And we can blame
the government because it is always the government's fault or we can
recognize there were flawed incentives encouraged by a lack of
regulatory oversight at the heart of our Nation's financial system--
flawed incentives that made risk-taking more profitable, flawed
incentives that increased loan officers' compensation when they made
loans they should not have been making.
We can maintain the 30-year fixed mortgage that has made
homeownership more affordable and given so many families an asset upon
retirement. We can preserve a strong government role in the mortgage
market, but instead too many in this body want to undermine the reforms
that we put in place 5 years ago. Republicans and their allies in the
financial industry fought Wall Street reform every step of the way.
They have been attacking these consumer protections since the day they
began.
We have to remember what a top financial services lobbyist said. The
day the President signed Dodd-Frank, the top lobbyists in the financial
industry said: Well, folks, today is half-time. Today is half-time,
meaning, OK, we lost in Congress, but we are going to keep pushing
these agencies. We are going to keep lobbying Congress. We are going to
try to roll back these rules. We are going to stop these rules. We are
going to dilute these rules and make them ineffective.
The bill my Republican colleagues today on the Appropriations
Committee brought in--Senator Coons will talk about that. The bill the
Republicans brought into Senator Merkley's and my banking committee
isn't a narrower targeted effort at reform for
[[Page S5449]]
small banks. It is a sweeping overhaul that rolls back Wall Street
reform. Once again, they want to undermine consumer protection. They
want to use small Main Street institutions as cover, but in the end
they want to allow special interests and their allies to undermine
reform and leave the American people exposed to the problems that
happened less than a decade ago. It is unconscionable that this abuse
was ever allowed in the first place.
Senator Merkley, a leader on this issue, especially in the Volcker
rule, will speak about his efforts and what he has seen in the past and
particularly looking forward to the future about what we do about
predatory loans and people and banks preying on consumers.
The PRESIDING OFFICER. The Senator from Oregon.
Mr. MERKLEY. Mr. President, I appreciate the leadership of my
colleague from Ohio, who has brought such a focus on ending predatory
activities, helping our financial system work for working Americans.
Indeed, that is certainly what all of our effort is about on the fifth
anniversary of the Wall Street reform bill, the Dodd-Frank bill. My
colleague was talking about the Humble Home mortgage, which was turned
into a predatory instrument that instead of building the wealth of the
middle class of America was designed to strip that wealth. There was
the two-year teaser rates in which interest rates would go from 4
percent to 9 percent, more than doubling. Liar loan underwritings, in
which the loan is way too large for a family, were given to a family
just to reap the immediate benefits on behalf of the mortgage broker:
the immediate commissions, steering payments and kickbacks that were
paid to mortgage originators to steer their clients from the prime loan
they qualified for into the subprime loan.
Now, thankfully, as the Senator from Ohio outlined, we have ended
those predatory practices and we must not let those practices return.
Homeownership has been the foundation for middle-class wealth--
homeownership, education, and good-paying jobs. We cannot take away
homeownership as a significant part of the American dream, the dream to
control your own space, the king or queen of your own castle, and
certainly to build the equity that puts your family on a strong
financial foundation.
Wall Street added to this particular story because they took these
predatory teaser rate loans and put them into securities. One can think
about securities as a box full of mortgages. Those mortgages generate a
certain cashflow, and you sell the cashflow. That is what a security
is. So these securities were only as strong as the mortgages that were
in the security box, and those mortgages were deeply flawed. When the
interest rate went from 4 percent to 9 percent, a family's payments
doubled. They weren't able to make their payments because the
underwriting had been inappropriate from the beginning, and they
weren't able to get out of the loan because there was a prepayment
penalty if they tried to get out of the loan. That was a steel trap
that locked families into these inflated interest rates and eventually
destroyed their finances. So we ended all that.
Think about what Wall Street did. They took these mortgages and set
up a securities waterfall--AAA, AA, and so forth. They got ratings on
these securities as if these home loans were the same sound, good home
loans of the past, not these new steering payment, prepayment penalty
teaser-rate loans that had started to become so common and such a
different instrument. Wall Street said we will make a lot of money
selling these securities.
Indeed, there were a couple other factors that came into play. Not
only did credit agencies give them great ratings despite the underlying
flaws, but there was also insurance that could be bought to protect the
security in case it would fail. It was called a credit default swap or
CDS. For a few cents you could buy insurance to make sure the security
was good. Of course, insurance is only as strong as the insurance
company behind it, and the purchasers didn't know the details of that
because it went through the middlemen in Wall Street. It turned out
that AIG, the American Insurance Group, was issuing this insurance in
vast quantities, not doing what an insurance group normally does, which
is set aside reserves to cover potential losses. Indeed, they were just
on a short-term upward--hey, we can sell these insurance policies
called CDS or credit default swaps for a ton of money for short-term
profits and long-term irresponsibility.
So let's fast-forward from 2003, when the predatory loans came into
popularity, and now we are in 2008 and mortgages are starting to fail,
the securities are starting to fail, and then of course the insurance
on those securities failed. Meanwhile, you have investment houses. For
example, Lehman Brothers in 1998 had $28 billion in proprietary
holdings, and by 2006 that had expanded to $313 billion against a
capital base of just $18 billion in common equity. Think of that
leverage--$313 billion in holdings and a base of $18 billion. That
enormous leverage meant that if there was just a slight decline in the
value of the products they were holding, then the whole firm was going
to come tumbling down. Because these securities started to fail, they
didn't have just a slight decline, they had a big decline. Suddenly,
you have a major investment house, Lehman Brothers, out of business.
That sent shock waves through our entire financial enterprise because
a lot of the financing--short-term financing--was done through 24-hour
financial transactions called repurchase agreements or repo agreements.
Repurchase agreements--you sell an asset for 24 hours, you get the
money, you buy it back 24 hours later, and then you resell it. That
means every 24 hours you have to come up with the cash to buy back this
repo financing. When the underlying value started to go down, the
company couldn't come up with the funds to execute the repurchase
agreements, so they had to do a fire sale of their assets. Well, if
they do a fire sale of their assets, that means for every other company
that has similar products, the value of their products now goes down
the tube overnight, and then they have problems. So you have a domino
effect--a contagion that spreads through the financial industry.
Let's trace this back in simple circumstances. You had healthy
homeowner loans, fully amortizing fair loans replaced by predatory
teaser-rate loans leading to securities based on these faulty predatory
mortgages. These securities became a major financial instrument. That
financial instrument collapsed when the mortgages collapsed. There was
a domino effect, a contagion that brought down our entire financial
house.
The American worker was on the losing end of this house of cards.
American workers lost their jobs. American workers lost their
retirement savings. These American workers often lost their homes
because after losing their jobs, they couldn't pay for their home or
because the teaser-rate mortgage doubled in monthly payments, they
couldn't make those monthly payments.
That type of destruction in which Wall Street casinos fared so well
and American workers were so destroyed must not happen again. That is
what the Wall Street reform bill is all about. On the fifth
anniversary, we have ended through the Volcker rule the proprietary
trading that was basically large hedge funds embodied within banks
being essentially done on the backs of Federal deposit insurance; that
is, the government was insuring the banks that were engaging in these
highly leveraged hedge fund operations. That is just wrong.
If you want to operate a hedge fund, absolutely, get your investors,
place your bets, and if you go down, the investors go down, but the
banking system doesn't go down. We must not allow these highly
leveraged hedge funds to be operating inside of our core banking
system.
The phrase that was often used as we were working on this 5 years ago
was ``Let's make banking boring again.'' Take deposits, make loans, and
through those loans fuel the success of our families and our
businesses. But if you want to be a high-risk investor, do it somewhere
else.
That is the core story about shutting down the Wall Street casino.
This is the Wall Street casino before the Dodd-Frank Wall Street reform
bill: Sorry, we are closed; afterwards: Well, I am not sorry they are
closed because we
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have rebuilt a financial system designed to work for working Americans,
and that is a good thing.
I look forward to turning this over to my colleague from Delaware.
The PRESIDING OFFICER (Mr. Gardner). The Senator from Delaware.
Mr. COONS. Mr. President, I would like to thank my colleagues from
Ohio and Oregon, as we come to the floor today to talk about the 5
years since the passage of the Wall Street reform bill--better known as
Dodd-Frank--and what it has meant for our States and for our country.
It is no secret that Delaware, my home State, is also home to a very
large financial services industry. The whole range of financial
institutions--from small community banks and credit unions, to larger
regional banks, to literally some of the largest banks in the world--
has a home in my State and employs tens of thousands of my
constituents.
So I understand it might be surprising to some to see me come to the
floor and join my colleagues in defense of the broad and sweeping Wall
Street reform bill that was enacted 5 years ago, but as a Democrat
representing these workers in a State that benefits from a robust
financial services industry, I also know how important strong, stable,
secure, predictable capital markets and well-functioning and well-
regulated financial services are to a healthy economy from which we can
all benefit. If we don't have a bank we can trust, we can't get a loan
or buy a home or finance an education--investments that can serve as
foundations to a brighter future for our families. If we don't have
robust capital markets, companies cannot get money they need to invest
in people and products and services, in growth and in jobs.
If you think of a world without functioning or reliable financial
services, you can picture money sitting useless, unaccessible under a
mattress. Without the roadways--the banks and financial services--to
connect it, this money cannot move and an economy cannot grow. Quite
literally, everything grinds to a halt.
We don't have to look far to see an example of this sort of seizing
up of a modern economy. Greece has recently experienced a devastating
financial crisis where money stopped flowing into and out of their
economy, banks limited the amount of cash people could take out, and
the government prohibited people from sending money abroad. The result
was widespread panic, disruption of day-to-day lives, and a deep
distrust of banks and banking that will take a long time to heal.
Capital markets and financial services that are well regulated and
well run are important to us all. That is why we have to do everything
we can to protect them. They make up a critical part of our Nation's
economic infrastructure and lay the foundation for economic recovery.
But just as streets need traffic lights and sharp turns need speed
limits and bridges need guardrails, so, too, financial systems need
fair and enforceable regulations. The alternative is what we saw just 5
years ago--the near collapse of our economy.
When the 2008 financial crisis unfolded, I was a local elected
official in Delaware, not a Senator. As our mortgage system, our
banking system, and our markets collapsed, I saw the real wreckage in
my own home community. I saw thousands of folks who lost their jobs,
who lost their life savings, who lost their homes, and the painful and
lasting impact on them and on our whole community.
The 2008 crisis proved that a poorly regulated market left everyone
exposed to risk, from consumers to financial services workers. Worst of
all, it sparked a widespread distrust in our economy and our banks both
here at home and abroad that we are still working to recover from
today. The devastation caused by the great recession proved our
financial system needed stronger regulations to protect consumers,
families, businesses, and to make sure our capital markets are liquid,
trustworthy, and reliable globally to instill faith back into our
economy and system.
So I believe it was in our national best interest for there to be
adopted fair, predicable rules to make sure we could all drive on the
road safely, metaphorically, regardless of what size car we drove or
what side of the road we were driving on. That is why, 5 years ago, in
the wake of the worst financial crisis since the Great Depression,
Congress's groundbreaking Wall Street reforms needed to become law.
Those reforms took important steps to strengthen the rules of the road
and prevent another significant crisis for our economy.
Congress created an agency, the CFPB, or Consumer Financial
Protection Bureau, with a simple important mission: to protect
consumers from abusive financial products. By helping to ensure that
consumers have accurate financial information about the risks and
benefits of financial products, CFPB works to prevent risky lending
practices. An essential feature of CFPB is that it is an independent
agency with only one responsibility; that is, protecting consumers.
Second, Wall Street reform limited risky and unsafe investment
practices at the highest levels of finance. It set strong capital
standards so banks have a sturdy backstop in times of need and ensured
that regulators have the tools to scrutinize banking practices that are
far more complicated than ever before--in fact, at the very limits of
what is capable of regulatory oversight.
Congress required banks to perform risk testing, to improve oversight
and make sure they can withstand turbulence in the same way first
responders are required to perform regular safety drills to make sure
everything works properly in the case of a crisis or a fire. Banks are
now required to make sure they have the protocols and the policies and
the resources in place to respond effectively to a renewed financial
crisis.
Last, the financial crisis made it clear that although there is much
we can do to limit risk and protect consumers, banks--particularly big
banks--can still fail. When they do, it is critical they are wound
down, they are resolved, they are closed in a way that is responsible,
does not spread contagion and harm the larger economy, and does not
require an expensive taxpayer bailout. That is why Wall Street reform
gave the government new abilities to responsibly wind down banks so
they do not cause a financial earthquake, much in the way the
government has done with smaller banks through the FDIC for more than
80 years.
While I believe these reforms took much needed steps toward making
sure our financial system is strong and healthy, I also believe we can
build upon these reforms.
One of its key authors, Senator Dodd, said just yesterday--former
Senator and Chairman Dodd said just yesterday at a public event: It
wasn't the Ten Commandments that was crafted; it was a law, and a law
that needs to be improved.
I know it might be difficult to believe Democrats and Republicans can
find common ground on Wall Street reform, but there are, in fact,
changes we can agree on that will make sure these reforms protect
consumers and financial services. For example, we ought to lighten the
regulatory burden on community banks so smaller banks can provide
lending that their neighborhoods really need to grow and thrive. That
is why Senator Merkley and I have cosponsored Senator Brown's important
bill, the Community Lender Regulatory Relief and Protection Act, which
would help smaller banks by streamlining exams, by helping credit
unions develop more diverse sources of capital, and by reducing onerous
privacy notification rules.
Many of the proposals in this bill have bipartisan support. I am
eager to work with my colleagues to implement those and other
improvements. But unfortunately, rather than looking for ways to
strengthen and sustain the broad architecture of Wall Street reform,
too many of our Republican colleagues have continued to try to roll
back the clock. We have seen how Republicans in the House have
continued efforts to dismantle these bills, in particular in recent
appropriations legislation. They have supported significant, harmful
cuts to the regulatory agencies that are charged with rulemaking and
with oversight--the most important entities in the financial services
realm. They have also tried to undermine and undercut the CFPB's
independence.
Just today, Senate Republicans have proposed similarly misguided
legislation. I plan to do everything I can to
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protect those agencies and stop efforts to fundamentally undo important
Wall Street reform.
It is time for my colleagues to stop proposing spending bills on a
wide range of the subcommittees of the Appropriations Committee that
have no chance of passing and that continue to push us closer to an
inevitable government shutdown that would devastate our economy and I
think cause real harm to our working families. I have heard those very
same colleagues argue that by doing so, they are on the side of banks
and they are on the side of increasing the forward growth of our
economy and that is why they want to dismantle regulations. But what I
hear from business leaders and bank leaders in my home State is that
the biggest threat they face are more manufactured crises here in
Congress that chip away at the confidence in the American economy that
serves as a bedrock of our prosperity.
As the leading Democrat on the committee charged with overseeing the
financial services funding bills here in the Senate, I think it is
critical that we work together to improve Wall Street reforms where we
can rather than reverse what progress we have made. Whether you are a
Republican or a Democrat, a consumer or a banker, a CEO or a small
business owner, a family member or a financial services worker, we can
all agree that we do not want another financial crisis. Nobody wants
another bailout to banks.
I strongly believe you can be pro-business, pro-financial services,
and still believe in smart, strong, sensible regulation to keep
everyone in our financial services system healthy and our overall
system and economy safe. I believe a well-regulated financial system is
critical to sustaining this sector into the future and ensuring that it
is a trusted place for businesses and consumers to invest in from at
home or abroad. A strong, secure, stable economy has long been the
hallmark of America's global leadership, so I think we must work
together to make sure it remains that way for decades to come.
Wall Street reform was the result of a lot of hard work and
compromise just 5 years ago. I look forward to working with my
colleagues to continue strengthening the financial rules of the road as
we go further into the future together.
I yield the floor.
I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The senior assistant legislative clerk proceeded to call the roll:
Mr. CORNYN. 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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