[Congressional Record (Bound Edition), Volume 153 (2007), Part 24]
[Senate]
[Pages 33295-33297]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        MORTGAGE LENDING CRISIS

  Mr. REED. First, I thank the Senator from Michigan for her kind words 
and also for her tremendous leadership as the leader of our Democratic 
caucus on so many issues, and a great representative of her State of 
Michigan. I thank the Senator.
  Today, Mr. President, the Bush administration announced a proposal to 
help stem the burgeoning crisis in foreclosures across this country. It 
is a welcome step, but it is a very timid step. It is one that is long 
overdue, in my estimation. This crisis has been evolving over many 
months, and the White House and the Treasury have taken a very long 
time to get to this moment and to propose this plan. And it is cautious 
plan, and only a partial approach to a very complicated and very 
dangerous problem.
  The problem is dangerous in the sense that millions of American 
homeowners are facing the peril of losing their homes to foreclosure 
because of the exotic mortgages that were sold to them with low 
introductory rates and now are being triggered to reset to relatively 
high rates, forcing many people to make the choice between giving up 
their home or giving up everything else to pay for their mortgage. That 
is the human aspect. And we are seeing it in our home State of Rhode 
Island, Mr. President, a record number of foreclosures, page after page 
in the newspaper of homes that are going to be foreclosed upon.
  This has an effect not only on the individual family but on the 
community as a whole because as homes are foreclosed in a neighborhood, 
they lower the value of the other homes. It has a ripple effect.
  I was meeting just a few weeks ago with the mayor of Central Falls, 
RI, who pointed out the increased number of foreclosed homes in his 
community, and also the mayor of Pawtucket, who has seen a significant 
increase in foreclosures. This goes right to the fabric of a community. 
So on the individual family level, on a community level, and now on a 
nationwide, indeed, global level, this liquidity crisis, this crisis in 
credit, is threatening the ability of our economy to function 
efficiently, to provide resources, credit, and loans not just to 
homeowners, but to industry and business as well.
  So the White House acted today, and I applaud their action, but it is 
timid. The proposed plan will only address a very small fraction of the 
foreclosure problem, and the Administration has yet to talk about and 
deal with the larger issues of economic growth and continuing an 
adequate supply of credit in our economy.
  According to Treasury officials, and an analysis that has been done 
by financial institutions, this initiative will help about 200,000 
people. But the reality is there are millions of Americans who are 
facing the danger of foreclosure. This 200,000 is just a small 
fraction. It is better than zero, which was the President and the 
administration's position just a couple of months ago as they worked on 
this, but it is not adequate to the daunting challenge of the 
foreclosure crisis which is facing America today.
  Indeed, the plan itself relies on a very complicated and, indeed, 
convoluted process. There are two classes of inquiry. First, they have 
to determine if the borrower is eligible for this

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relief, and then they have to go through another analysis to determine 
what type of relief the borrower would be eligible for. In addition, it 
appears the borrower is in the position of having to contact their 
lender or servicer if they would like to figure out if they are 
eligible for a loan modification. This is not the responsibility of the 
lender or servicer. In other words, this is not a systematic approach 
to relief. This is rather a case by case approach, involving very 
elaborate procedures which I don't think will in effect reach all the 
eligible homeowners who are in danger of losing their homes. I think 
this approach is backwards. It should be the obligation of the lenders 
and servicers to reach out to the borrowers who are in danger of 
default, to help walk them through the process. And it should be a much 
more efficient process.
  Today the President offered an 800 number to borrowers, but there are 
a profusion of 800 numbers, all the way from buying a salad maker to 
buying an exercise machine. I don't think an 800 number is going to be 
able to engage people who are fearful about losing their homes and 
actually get them involved in this process and keep them involved. So I 
think this is a shortcoming in the approach, which is already a limited 
approach.
  Finally, this plan has not been ratified and accepted 
enthusiastically by all of the important investors and the other 
industry players. The final plan was characterized as an agreement with 
the HOPE NOW industry coalition. This coalition consists mainly of 
trade groups and has no real ability to implement the plan. They are 
not the spokesperson for all of the people who will actually have to do 
the work, and the list of members seems to be a partial list at best.
  So for many reasons this plan is really just a set of guidelines 
regarding how the Administration would like to see part of this problem 
worked out but does not have the action-forcing devices and the 
incentives for the servicers, the lenders, and all of the people who 
really can make this work to go out and put it into effect.
  We need to do much more, and there are several things we should do. 
We need to do much more because this is a burgeoning crisis. I can 
recall last April convening a committee meeting, as I chair the 
Subcommittee on Securities, Insurance and Investment, and we had 
witnesses from some of the major investment banks in New York City and 
the rating agencies. We had individuals who were facing the problem of 
foreclosure, and at that point industry was describing this as a rather 
narrow, self-contained crisis pertaining only to subprime mortgages. 
They talked in terms of this being about a $19 billion problem, which 
in a worldwide economy is not a staggering amount of money. It is to 
you and I, but not in a worldwide economy. And they also essentially 
said, well, this is over. The market has already corrected itself.
  It is not over. It is now spilling over into other forms of 
securities. It is now eroding, as I suggested initially, because of 
psychological factors as well as financial factors, confidence in the 
overall banking system and the economy's ability to function.
  In the newly released Mortgage Bankers Association National 
Delinquency Survey, the rate of loans entering the foreclosure process 
was approximately .78 percent. That is up 32 basis points from 1 year 
ago. This is a problem that is growing. This is not at all a self-
contained problem. This is a growing problem. This is the highest rate 
of loans entering foreclosure ever recorded in this survey--ever 
recorded, going back many years. So this is not only an increasing 
problem, it is a significant problem in our economy and in the lives of 
Americans everywhere. The percentage of loans actually in the 
foreclosure process also increased to 1.69 percent, which is also the 
highest level ever recorded.
  In Rhode Island, we have the dubious distinction, Mr. President, of 
the highest foreclosure rates in New England. The percent of loans that 
were seriously delinquent or in the process of foreclosure in the third 
quarter of this year was 3.23 percent, and the percent of subprime 
loans in this category was 14.97 percent. So for our own home State, we 
are seeing an explosion of these foreclosures.
  We are also seeing, simultaneously, the largest price declines in the 
housing sector since the Great Depression. Not only are people losing 
their homes, but those who are still paying their monthly mortgages are 
seeing the value of their homes diminish significantly. For so many 
people, that was their whole source of wealth. In fact, I would suggest 
that it was one of the major reasons that consumption and consumer 
activity were so robust over the last several years. As energy prices 
went up, as other factors intervened, what kept consumers in the game 
was this notion they were wealthy because their house was appreciating 
every year. That has changed, and that will have an effect.
  At least one housing expert I talked to thinks this housing downturn 
is going to be one of the longest we have experienced in the last 50 
years. Instead of lasting an average of 24 months, he expects it to 
last up to 48 months, which would take us to at least 2 years from now.
  What we know now is that the banks and the rating agencies 
underestimated the underlying risk in many of the financial products 
offered to home buyers, and their actions have resulted in serious 
consequences to the availability of credit and to the capital markets 
in both our economy and the worldwide economy. What started out as a 
problem centered on subprime loans has spread to other parts of the 
market and the economy. And there need to be serious policy 
recommendations to address these problems as well.
  Now, what we have to do is a series of steps, none of which is the 
magic solution, but they are all collectively important. We cannot stop 
today with the announcement by the administration. Secretary Paulson 
himself has urged Congress to pass the FHA Modernization Act. The 
administration should take the next logical step and not simply be 
cheering from the sidelines, but get in the fight and encourage those 
in this body who are holding up that FHA bill to let it go. Words are 
important, but deeds are more telling. So if the Secretary is truly 
interested in getting that bill moving, he needs to come up here and be 
talking to the members of the Republican caucus who are holding up this 
bill.
  We also need the administration's leadership in passing bankruptcy 
reform. Senator Durbin has an excellent bill that will allow borrowers 
and lenders to renegotiate the terms of their mortgages so that people 
can stay in their homes as part of a bankruptcy proceeding.
  We need Tax Code changes so that borrowers would not pay Federal 
taxes on the debt discharged by lenders on their home mortgages the so-
called short sale. There are some people who recognize they can't keep 
their home. They can sell the home at a loss, and with an agreement 
from the lender at a price less than the value of their mortgage. The 
lender takes this discharge as a loss, and the IRS, under current tax 
law, determines that this is income for the borrower and taxes it. We 
need to change that.
  In fact, Senator Stabenow has a bill to do just that, and it was part 
of the proposal that Senator Baucus offered earlier today in 
conjunction with AMT.
  Finally, I think we have to have a substantial increase in the 
availability of housing counseling, and this is included in the bill I 
introduced, called the HOPE Act. An increase in housing counseling 
funds is also in the appropriations for Transportation, Housing, and 
other agencies bill which has received a veto threat from the 
President.
  In the HOPE Act, I also have suggested that we include mandatory loss 
mitigation requirements; that a lender has the obligation to work with 
a borrower to see if there is a way to avoid foreclosure if it is 
economically feasible to do so.
  We need to work together--the Congress, the administration, the 
regulators, and the industry--toward the goal of keeping American 
families in their homes, and we also have to recognize that if we don't 
act coherently,

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comprehensively, and in a timely fashion, what presented as a small 
subprime loan crisis and has burgeoned into a national foreclosure 
crisis could undermine economic progress in this country and maybe 
across the globe.
  Time is wasting. We have to move forward. I urge my colleagues to do 
so.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Montana.

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