[Congressional Record (Bound Edition), Volume 153 (2007), Part 6]
[Senate]
[Pages 8320-8321]
[From the U.S. Government Publishing Office, www.gpo.gov]




                             HOME OWNERSHIP

  Mr. ISAKSON. Mr. President, I rise to address a very serious subject. 
A lot of times when we come down here to speak, we are given speeches 
to make, and a lot of times on topics we don't know very much about.
  In my professional career, in my life before I got into politics, I 
spent 33 years selling houses. I had a company that sold thousands of 
houses every year in Atlanta, GA. I understand the joy of home 
ownership, the responsibility of home ownership, and the huge benefit 
of home ownership, I guess, as well as anybody.
  I have always said that the thing which separates the United States 
of America from every other country in the world is the fact that we 
are a nation of homeowners, and the rest of the world, substantially, 
is nations of renters. We all know that when you have an investment in 
something and you own it versus you are just leasing it, you take a lot 
better care of it.
  The single-family housing industry, the principle of our Constitution 
for the wide diversity in private ownership of land, is the single most 
important asset that binds our country together. It is the common 
interest that every citizen has, and it has become known, as we all 
know, as the American dream.
  Today, the Washington Times, Washington Post, New York Times, all 
have carried articles regarding predatory lending, subprime mortgage 
markets. The Federal Reserve Chairman, Ben Bernanke, has made a 
statement that they will be looking at regulations to deal with the 
subprime market. I think that is appropriate, but it is very important 
we understand what the problem really is.
  There are a lot of people who will tell you the problem is predatory 
lending. Well, predatory lending is a horrible thing, but it is like 
the term ``obscenity'' was referred to in the Supreme Court, something 
that is in the eyes of the beholder--you cannot necessarily define it 
but you know it when you see it.
  The subprime market has in some cases been referred to as ``predatory 
lending,'' and it is not. In fact, it is interesting history, where the 
subprime market came from.
  Fannie Mae, which was headed about 10 years ago by Jim Johnson, who 
wrote a book, ``Showing America a New Way Home,'' committed itself to 
widening the ownership of single-family housing. They recognized that 
in some cases, single-family housing was out of the reach of certain 
parts of society, so they created mortgage-backed securities to buy 
mortgages in the subprime market. The subprime market is subprime 
because the borrower is not necessarily a grade-A credit risk. But as 
we all know, at one time or another in our lives, none of us have 
always been a grade-A credit risk. It proliferated. That is why home 
ownership in the United States of America went from 67 percent of the 
public live in a home they own to now to 70 percent of the public live 
in a home they own.
  What has happened in recent months, because of some factors I am 
going to address, is the foreclosure rates have skyrocketed and the 
vast proportion of those loans that have been foreclosed on are 
subprime loans.
  There are a lot of people rushing to talk about doing away with 
subprime loans. There are a lot of people talking about calling them 
predatory loans and regulating whether they can exist, and they are, 
with all due respect, missing the point. The mortgage industry has made 
some mistakes, but it is not the mistake of trying to show Americans a 
new way home; it is a mistake in five areas which I want to delineate 
for one second.
  During the course of the subprime market's evolution and the wider 
distribution of home ownership, the underwriting of loans became less 
than what it should have been. Some examples: no documentation, where 
people could qualify for the loan and have it underwritten on 
documentation that was based basically on what they said they made and 
what they said they were worth; no-downpayment loans, where people 
could make loans with no downpayment, no equity. I want to talk about 
that subject for just one second.
  I entered the business in 1967, and the Congress, in its wisdom--to 
widen the dispersity of home ownership--created the 235 FHA Program. 
They would loan you up to $18,500, which doesn't sound like a lot, but 
that would buy a lot of house in 1967. You could borrow it for $200 
down, and the rest of it was a loan. If you did not have the $200, they 
allowed sweat equity, which meant you and your wife could go in and 
paint the living room, dining room, and kitchen,

[[Page 8321]]

and they would give you that credit. The loans proliferated and home 
ownership expanded, but because they really had no equity in the 
property, those houses started going into foreclosure, and the next 
year was one of the roughest--1969--one of the roughest years in the 
market.
  Congress held congressional investigations. What had turned out was 
that an attempt to originally expand home ownership had become an 
opportunity to make less than good loans to a lot of people who were 
not ready to borrow those funds.
  There is a third reason--the proliferation of loans like interest-
only. Interest-only is a very sophisticated way to borrow. I understand 
real estate investment, and real estate investment is best when 
leveraged but only when leveraged right. When you loan someone 100 
percent of the value of what they are buying, you have to be very 
careful in your underwriting criteria or else they really do not feel 
like they have equity in the proposition.
  ARMs and variable-rate mortgages, adjustable and variable rate 
mortgages--they are sophisticated lending tools and are very effective 
and very good loans, but they are complicated because after an initial 
low rate of interest, on alternating years, like every other year or 
the fifth year or whatever it might be, the loans adjust to the 
marketplace and the interest rate can go up or it can go down, but 
generally it is going to go up because it is generally a lower teaser 
rate going in than the market exists at that time.
  Home ownership is a responsibility. Another thing that has happened 
in the marketplace is that a lot of loans have been made to people with 
very little regard to whether they were prepared for the responsibility 
of home ownership.
  So my suggestion to the Fed and to all of those looking into this 
issue--I know Senator Schumer, Senator Clinton, Senator Grassley, 
Senator Baucus, and many Members of this Chamber are talking about: 
What are we going to do about this subprime dilemma? The first thing I 
hope they will look at is underwriting standards. The second thing I 
hope they will look at is a clear understanding through truth and 
disclosure and Regulation Z of borrower disclosures so that people know 
what they are getting into and a true look at whether borrowing 100 
percent is the ideal thing to do.
  I do not think we need to have an overreaction to what is obviously a 
problem. Instead, what we need to do is try to perfect the process so 
that we can continue to show Americans a new way home but have a loan 
that responds to those people's needs. Those needs are better 
documentation, better appraisals and certifications, making sure there 
is equity in the investment and, most importantly of all, making sure 
they understand the responsibilities of that home ownership.
  As I said at the outset of my remarks, the wide diversity of the 
ownership of land and home ownership is what separates America from the 
rest of the world. We have the largest diversity of ownership of our 
land, the most homeowners, percentage-wise. In most of the world, all 
of the people who live there rent from someone else. It separates our 
country, and it separates us in a very good way.
  As we deal with the subprime market, we want to make sure we do not 
throw the baby out with the bathwater. It is important to correct the 
documentation and the underwriting but not destroy what has been a tool 
to expand the ownership of homes to people who never thought they could 
live the American dream.
  Let's make sure, when we underwrite them, we underwrite them right 
and the people who are borrowing the money understand the 
responsibility of the mortgage instrument and the value of home 
ownership.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. NELSON of Nebraska. 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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