[Congressional Record (Bound Edition), Volume 153 (2007), Part 19]
[Senate]
[Page 26764]
[From the U.S. Government Publishing Office, www.gpo.gov]




            THE HOMEOWNERS' MORTGAGE AND EQUITY SAVINGS ACT

  Mr. SPECTER. Mr. President, while I have the floor, I want to say a 
few words about S. 2133, the Homeowners' Mortgage and Equity Savings 
Act, which I introduced yesterday. This legislation addresses the very 
severe problem of the many homeowners who are now in default on their 
mortgage payments. This problem has arisen largely because of the many 
homeowners with adjustable rate mortgages who face increased interest 
rates and unexpected increases in their mortgage payments.
  This is a complex matter, but in many cases, I think there is a real 
question as to whether lenders made adequate representations to 
borrowers. Regardless of whether the representations were adequate or 
not, many borrowers are now confronted with interest rates they had not 
anticipated and mortgage payments that they can't afford. In the past 
year, the percentage of homeowners with adjustable rate mortgages who 
are seriously delinquent either 90 days past due or in foreclosure--has 
nearly doubled. In my home State of Pennsylvania, the number of those 
who are seriously delinquent has gone up by some 40 percent. The 
problem is particularly severe among borrowers who had weak credit or 
low incomes and obtained mortgages at subprime rates. The Center for 
Responsible Lending projects that some 2.2 million Americans with 
subprime loans originated between 1998 and 2006 have lost or will lose 
their homes to foreclosure.
  Chapter 13 of the Bankruptcy Code currently give debtors breathing 
space by imposing a stay on collection of debts, including mortgages, 
and prevents lenders from foreclosing for a period of time. During that 
period debtors are given the opportunity to get caught up on their 
mortgage payments. However, the current Code does not permit any 
modification of mortgages.
  Now with many homeowners facing possible bankruptcy due to their 
mortgages, some relief is necessary.
  The legislation which I have introduced will provide a number of 
remedies. With respect to adjustable rate mortgages, it will allow 
bankruptcy judges to prevent or delay interest rate increases and to 
roll back interest rates that have already reset. This will enable the 
homeowner to continue to pay down the principal amount that they took 
on when they bought their house, but will give them relief from 
increases in their payments due to resetting interest rates.
  The bill also will allow the bankruptcy judges to waive early 
prepayment or prepayment penalties. Many of the borrowers face the 
situation where they could refinance and get less risky mortgages with 
manageable payments, but the penalties in their current mortgage 
contracts are so stiff that they cannot refinance.
  Now, the bill does not give bankruptcy judges the latitude to reduce 
the principal on a mortgage. Senator Durbin introduced a bill yesterday 
that goes beyond the bill I have introduced; it allows bankruptcy 
judges to reduce or ``cram down'' the principal on a mortgage in 
accordance with what the bankruptcy judge determines is the value of 
the property. My bill would only allow the reduction of principal if 
the lender and the homeowner agree.
  I think there is a very significant risk in allowing cram down. If we 
allow cram down, lenders will factor the risk of having the principal 
value of their loan reduced into the interest they charge to future 
home buyers. In other words, people who borrow in the future are going 
to pay more in interest if the lenders don't have the certainty that at 
least the principal value of their loan will be recognized and not 
reduced. Under current circumstances, I think it is fair, on these 
adjustable rate mortgages--which really are the problem if delinquency 
rates are any indication--to allow judges to modify interest rate 
increases which in many cases have been significant and in some cases 
the mortgage terms may have been fraudulent or just basically unfair. 
But when it comes to reducing the principal, then I think we go too 
far.
  Many of the consumer groups would prefer to see the bankruptcy judge 
have the latitude to reduce the principal, and that might help those 
who are in default now, but that will make it more difficult for those 
who borrow in the future. That is because--to repeat--lenders will have 
to charge more interest to take into account this additional risk.
  I have discussed the differences in our bills with Senator Durbin. We 
tried to come to terms and find an accommodation so that we could 
support the same legislation. However, it appears we do support 
legislation directed at the same problem. The legislation I introduced 
is aimed at helping those caught up in the current crisis without 
making it harder on those Americans to own a home in the future.
  The Judiciary Committee has jurisdiction on bankruptcy. The Committee 
has jurisdiction on the Durbin bill and on my bill, S. 2133. My 
position is not set in concrete. However, I am opposed to what Senator 
Durbin seeks to accomplish and I am disinclined at this state based on 
the investigation which my staff and I have made to support his bill.
  It is my hope that the Judiciary Committee will have hearings on this 
important issue and bring in mortgage bankers, consumer groups and 
investors to give us a better idea as to the intensity of the problem 
and what really ought to be done. Perhaps at that point we can meld our 
ideas into a common solution to the problem.

                          ____________________