[Congressional Record (Bound Edition), Volume 154 (2008), Part 2]
[Senate]
[Pages 2966-2970]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            MORTGAGE CRISIS

  Mr. DURBIN. Mr. President, last week we had a debate on the floor of 
the Senate about three different measures. The frustration was that at 
the end of the week, nothing happened. Now a lot of people who watch C-
SPAN and observe the Senate in session wonder if anything ever happens. 
It seems as though there are a lot of gaps in activity here--so-called 
quorum calls--that seem to go on and on and on, and then you switch to 
another channel. Of course, if you are a Member of the Senate, there is 
a frustration about this if you came here and believed part of your job 
is to try to solve problems facing this country.
  Early in the week, we tried to start a debate on the policy on the 
war in Iraq. It was an important debate. It is one we have tried to 
initiate many times over. Under the way the Senate rules are written, 
the minority party--the Republican Party--can ``filibuster'' is what 
they call it around here, which means stretch out the debate until 
there is no end in sight, and then you file what is called a cloture 
motion to close down the debate to get to a vote, but you need 60 votes 
to close down the debate. So these cloture motions to stop filibusters 
are brought to the floor, and if you don't have 60 Senators who will 
say close down the debate and get to a vote, you have to move to 
something else. The filibuster worked. Last week, three times the 
Republicans had successful filibusters, stopping us from debating a 
change in the policy in the war in Iraq to start to bring American 
soldiers home.
  Then, the second vote was a report from the Bush administration on 
the progress that is being made to capture Osama bin Laden and to stop 
worldwide terrorism. They filibustered that too. They didn't want the 
administration to report.
  Then came the housing bill to deal with the mortgage crisis around 
America, and we had six very sound and good ideas to try to deal with 
it. They filibustered that, too, and they stopped it. What a 
frustration. At the end of the week, to say we spent all this

[[Page 2967]]

time--30 hours between each vote, incidentally--and nothing happened. 
Frankly, if we were being paid on the basis of productivity here, none 
of us deserve a paycheck for last week because we did nothing. There 
were a few inspiring speeches on the floor, but nothing happened.
  Well, the problem, of course, is the issues we addressed last week 
are still issues this week and will be for a long time to come. The war 
in Iraq is still claiming American lives. We are perilously close--
sadly close--to 4,000 American soldiers who will have died in a war 
that has lasted longer than World War II, a war that is going into its 
sixth year, a war that has cost us 4,000 American lives, 25,000 or more 
American soldiers seriously injured, and by the end of this President's 
term, $1 trillion. We are spending $10 billion to $15 billion a month 
on this war. We have this budget that comes along, but we don't have 
enough money for medical research at the National Institutes of Health. 
We don't have enough money to fund No Child Left Behind so that the 
schools can improve their standards. We don't have money to expand 
health insurance coverage for uninsured children in America, but we 
have enough money to spend $10 billion to $15 billion a month 
indefinitely on this war in Iraq. Is that worth a debate? Is it worth 
it for Senators on both sides of the issue, both sides of the aisle to 
stand up and say where they stand and to vote? I think that is why we 
are here. If it isn't, then I have missed something completely. I am 
honored to be representing the great State of Illinois, and I don't 
believe for a minute that my views are the views of everybody in that 
State. When I cast a vote or make a speech, I go back home and people 
ultimately make a judgment as to whether I should continue to represent 
them.
  This Senate has now become dysfunctional. This Senate is now wrapped 
up in filibusters. Last year, the Republican minority in the Senate 
initiated 62 filibusters--62 filibusters in 1 year. It was an all-time 
record. The record before that was 62 filibusters in 2 years. They 
doubled the record number--the rate of the record number of filibusters 
in the history of the Senate. Why? To avoid a vote; to avoid votes on 
issues that may be used against you in a campaign. Please.
  My good friend, the late Congressman from Oklahoma, Mike Synar, used 
to say: If you don't want to fight fires, don't be a firefighter. If 
you don't want to stop crime, don't be a policeman, and if you don't 
want to vote on tough issues, don't run for Congress. I agree with him. 
I don't like facing tough votes, but it is a part of the job. You ought 
to at least have enough confidence in your beliefs to cast that vote 
and go home and explain it.
  But the Republican side of the aisle is now trying to insulate their 
Members from even casting tough votes. Is it any wonder the national 
approval rating of Congress is so low after last week, the Republican 
strategy of filibuster after filibuster after filibuster and at the end 
of the week nothing happened.
  One of the last things we debated is the housing crisis. I wish to 
tell my colleagues, if you read the newspapers over the weekend and 
this morning, we are whistling past the graveyard as a nation. Our 
economy is in serious trouble. I would not use the word ``recession'' 
because the recession is, by tight definition, two negative quarters of 
business growth. We have not had that. I hope we don't. But everyone 
knows the economy is in trouble. It is obvious from the unemployment 
statistics. It is obvious in the disparity of income, where some 
executive of a major company can make more money in 10 minutes than a 
worker who works all year in a factory. It is obvious in all the jobs 
we have lost in this country, good-paying factory jobs, now shipped 
overseas. For those who remain, ask the people working there about the 
cost of their health insurance. It goes up every year and covers less. 
Ask them about their pension plan: Oh, it used to be a good one for my 
dad, but I am in a new group of employees and ours is not so good. That 
is the reality of the economy today.
  But at the heart of our economic problem is the housing crisis: 2.2 
million Americans will face foreclosure in the few years--2.2 million 
subprime mortgagers who put a mortgage on their home and now they can't 
make the payment when the adjustable rate mortgages change. In the old 
days, you signed up for a 25- or 30-year mortgage and the interest rate 
and term of the mortgage and monthly payments were predictable: 
principal and interest. You knew what you were going to face. Not 
today. Under subprime mortgages, the mortgage banking industry came in 
with the most exotic products you could imagine: interest only 
mortgages, mortgages where you pay a little bit now and it changes 
later on. It became almost impossible to follow. Sadly, a lot of people 
signed up for mortgages they didn't understand, or that they were 
deceived into signing. I don't know if you have ever gone through a 
real estate closing--I have a few times in my life. I went through a 
lot of them as a lawyer. You know what they hand you at closing, that 
stack of papers, they shove it right in front of you and the banker or 
the realtor, whoever happens to be in the room, says: Well, you need to 
sign all these forms, you and your wife need to sign them.
  What are they?
  Oh, Federal forms, Truth in Lending, all of these things; the State 
requires them, the Federal Government.
  So you turn the pages and sign and sign and sign, and then they say: 
Fine, OK. Thank you very much. You can move into the house next week.
  You often wonder--I know I have--has anybody ever read those? Do you 
know what is in there?
  Do you know what happened to a lot of people? They ended up going 
through closings and signing up for mortgages that were downright 
unfair. Many of them were deceived into signing up for mortgages which, 
frankly, I think were predatory, unfair, and a blight on the mortgage 
banking industry. That is why so many of them are so-called 
``underwater'' now. Companies and banks are writing off so many of 
these loans because they were luring people into circumstances that 
weren't possible, and people ended up losing their homes.
  What happens when 2.2 million homeowners, out of a population of 300 
million people, lose their homes? You think: It doesn't sound like 
much, 2.2 million. If a person in your neighborhood files for 
foreclosure or bankruptcy because they are going to lose their home, it 
affects the value of your home, even if you are paying your mortgage 
every single month. Do you know why? Because the value of your home is 
based on the average sales price in the area. If the neighbor's house 
down the street went up for auction because of a foreclosure and sold 
below fair market value, it drags your property value down. One out of 
three homeowners in America now making their mortgage payments 
dutifully will see the values of their home go down through no fault of 
their own. The most important asset in your life for most families is 
diminishing in value because of the mortgage foreclosure crisis.
  So what does the administration say we should do about this national 
economic crisis? Not nearly enough. The most forward-looking proposal 
from the Bush administration could affect 3 percent of the people 
facing foreclosure. Three out of one hundred might be helped by their 
approach. That isn't enough. Until we turn this housing crisis around, 
this economy will not turn around. I think that gets to the heart of 
it.
  So here is what our bill says. Our bill says we are going to put more 
mortgage counselors out on the street. If you can't make your mortgage 
payment, it doesn't do you any good to hide in a cave. Eventually, they 
are going to catch up with you. Reach out and talk to somebody you can 
trust. That is what the mortgage counselors are all about.
  Senator Jack Reed of Rhode Island has a provision which I think is so 
simplistic and straightforward it makes eminent sense. When you sit 
down at that real estate closing, there ought to be a cover sheet right 
in front of you and it ought to say: You are borrowing X number of 
dollars. You are going to

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pay X interest rate. That interest rate in 2 years may change to X. 
Your monthly payment now is X. Your monthly payment then will be Y. 
There is a penalty or there is no penalty for prepaying your mortgage. 
Five pieces of information: none of which are that hard to come up 
with, but at least as a buyer, right there in front of you, are the 
basics. You know what you are getting into. Senator Reed of Rhode 
Island put that in our package, our housing package.
  Well, maybe that would have passed but for one provision. The 
President announced last week he would veto our housing bill because of 
a provision I added to it. I wish to take a minute to explain it.
  I think it really gets to the heart of this debate. If you listen to 
the Presidential campaign, it is all about who controls this place and 
the House of Representatives. Is it a special interest lobbyist out in 
the hallway, well dressed and well paid, or will it be the voters and 
the people in this country? That is the fundamental question of this 
Presidential campaign.
  Why is Congress tied up in knots and failing to do anything? Who 
controls Congress? Whom does Congress answer to? That is the debate 
going on across America now. Boy, you would not hear much about it in 
this Chamber. Why? Because the Mortgage Bankers Association came out 
against my provision and said defeat this bill because of this 
provision.
  Let me tell you what it does. About a third of the people facing 
foreclosure will end up in bankruptcy court. They will go to chapter 
13, which is an effort to try to work it out, where you say: Here is my 
income, my assets, and my debts; is there any way I can make payments 
and keep my home and do these things? The court then looks at it and 
brings in all the creditors and tries to work out a package deal so you 
can stay in your home, through chapter 13, and get through it.
  Now, if you are facing hard times and foreclosure on your vacation 
condo, the court could sit down and work out the terms of your 
mortgage--in terms of the length, how much you will pay, and the 
interest rate you will pay. If you have a farm or ranch, the court can 
do the same thing and work out the terms to see if maybe it can work, 
if a package can be put together that lets you keep your properties. 
But the law specifically prohibits the bankruptcy court from modifying 
the terms of the mortgage on your home--vacation condo, yes; farm, yes; 
ranch, yes; but your home, no. Why is that? It is because the law was 
written 20 years ago that says they cannot touch it.
  Well, we change that law. We allow the court, under specific 
circumstances, to modify your home mortgage. Let me tell you the 
conditions.
  First, it only applies to people currently holding a mortgage, not 
prospective, and it is not changing the law forever.
  Second, it only applies to those with subprime mortgages, the ones 
with the serious problems.
  Third, it only applies to those who can qualify to go into bankruptcy 
court. Most people cannot get into bankruptcy court because you have to 
prove that your debts are more than your income.
  Fourth, when they modify the mortgage, they cannot go below the fair 
market value of the property. If the property goes into foreclosure and 
the bank ends up owning it and they sell it at auction, almost never do 
they get fair market value for it. We say that the fair market value is 
the bottom line as to what that mortgage can be modified to. We also 
say the interest rate will be the prime rate plus a premium for risk. 
So we look at the interest rate.
  We add another provision. Say you bought the home for $500,000 and it 
is worth $450,000 now. They can work out an agreement in bankruptcy 
that you can stay in the home and pay the mortgage on $450,000. Then, 
in 2, 3, or 4 years, as the value goes back up to $500,000, that 
difference goes to the bank, not to the individual. So they are 
protected on the upside by that provision and on the downside by fair 
market value.
  The mortgage banking industry opposes this. They won on the floor of 
the Senate last week. Only one Republican had the courage to vote with 
us for this change. Every other Republican Senator voted no. So if 
there is any question about a scorecard, the mortgage bankers who, 
incidentally, got us into this mess with the subprime mortgages and 
who, in many instances, deceived people into mortgages that were 
totally unfair to them and their families, these mortgage bankers 
prevailed. The housing stimulus package failed.
  I hope we can return to this, and I hope we can do it this week. The 
problem is still there. Sunday, the Chicago Tribune editorialized 
against my bankruptcy provision and said this is going to raise 
interest rates across the board; that the industry is going to raise 
interest rates because if they have to face the prospect of modifying 
their mortgages, they are going to have to raise interest rates.
  So I did a little calculation. If 600,000 people go into bankruptcy, 
on the upside, and we have about 120 million homeowners in America, 
that is one-half of 1 percent of those who would be affected by it.
  So I don't think their fear-mongering is going to work. Sadly, they 
carried the day last Friday. We have to try again. There is not another 
provision in this housing stimulus that will reach as many people--even 
600,000--as the provision I have described.
  I see that the Senator from Pennsylvania is anxious to speak. I will 
wrap up in just a minute.
  This situation with this provision is very important. When I asked 
the industry, ``Why do you oppose this?'' do you know what they tell 
me? The ``sanctity'' of the contract. Well, I will tell you, if 
sanctity means holiness, there is nothing holy about the subprime 
mortgages I have been told about or about a subprime mortgage that a 
person signed up for. For example, a poor lady who is retired, age 65, 
was lured in by some television ad and had papers pushed in front of 
her at closing. She was told she could save her home if she signed this 
package. There is nothing holy about what happened to the woman in 
Peoria, IL, who, after her husband faced a fatal illness, had to get 
into a one-story home so he didn't have to climb stairs. Some adviser 
along the way convinced her to consolidate all of her debt into her new 
home with an adjustable rate mortgage, and her monthly payments doubled 
to the point where she cannot now stay in there. There is nothing holy 
about the mortgage that the couple from Cleveland faced, who came to 
see us last week. They are both hard-working people, and they are about 
to lose their home outside of Cleveland. They thought they were doing 
the right thing. In the fine print, it said that the mortgage interest 
rate can never go down, it can only go up. They didn't know that. This 
poor man is a maintenance supervisor. Who told him the real terms of 
the mortgage? The sanctity of the contract. The holiness of the 
contract.
  I will tell you, our job here is to make sure people in America are 
treated fairly; that big companies, whether they are mortgage banks or 
corporations, are held to a standard of conduct that recognizes 
civility, ethics, and moral conduct. What we have seen in this subprime 
mortgage mess--sure, there has been wrongdoing on both sides, but 
overwhelmingly a lot of people have been deceived into losing their 
homes.
  The mortgage bankers won the first round last week. Congratulations. 
Hats off to them. They clearly have sway over the Congress at this 
moment. But I hope that changes. I hope some people in the Senate will 
reflect on this and really try to do something about the housing crisis 
and to get our economy back on its feet.
   I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Pennsylvania is 
recognized.
  Mr. SPECTER. Mr. President, I had been advised that I would have 30 
minutes in morning business. I ask unanimous consent that I be 
permitted to speak for up to 30 minutes.
  The ACTING PRESIDENT pro tempore. Is there objection? Without 
objection, it is so ordered.

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  Mr. SPECTER. Before the Senator from Illinois leaves the floor, I had 
come to the floor to talk about the confirmation of judges, but while 
the Senator from Illinois is still on the floor and has spoken on a 
subject he and I have been working on for some time, I would appreciate 
it if he would wait just a few minutes while I engage him in some 
dialog and debate and try to deal with the issue on which we have been 
working.
  Mr. DURBIN. I am happy to.
  Mr. SPECTER. Mr. President, the Senator from Illinois has proposed 
legislation that would authorize bankruptcy courts to reduce the 
principal value of mortgages--so-called ``cram down''. I have 
introduced legislation that would authorize bankruptcy courts to reduce 
the interest rates on variable rate mortgages. I have taken the 
position I have because I believe giving bankruptcy courts the 
authority the Senator from Illinois has advocated for would have a 
serious, disruptive effect, discouraging lenders from loaning money for 
home mortgages. I am not alone in that view. Congress expressed that 
view when it expressly barred bankruptcy courts from modifying 
mortgages. Justice Stevens noted this in Nobleman v. American Savings, 
when he said the following:

       At first blush, it seems somewhat strange that the 
     Bankruptcy Code should provide less protection to an 
     individual's interest in retaining possession of his or her 
     home than of other assets. The anomaly is, however, explained 
     by the legislative history indicating that favorable 
     treatment of residential mortgages was intended to encourage 
     the flow of capital into the home lending market.

  That is to say, in essence, that if bankruptcy courts could modify 
mortgages, lenders would issue fewer mortgages in the future, a serious 
disadvantage to Americans who want to buy homes down the road.
  It is this concern that led me to introduce legislation that would 
allow bankruptcy courts to modify mortgages in a very limited way. My 
bill focuses on the problem by allowing bankruptcy judges to modify 
interest rates on mortgages where the rate has increased dramatically. 
The number of these types of mortgages has increased substantially in 
recent years. In 2001, adjustable rate mortgages accounted for 16 
percent of all home loans. By 2006, this share had increased to 45 
percent.
  The Senator from Illinois has characterized my legislation in 
somewhat uncomplimentary terms, to put it mildly. He said:

       Specter's language is worse than useless. It's 
     counterproductive. It creates the image of action and 
     response and it does nothing.

  Worse than useless. That is very tough talk, but let's examine what 
the facts are. The facts are that the rate of delinquency and 
foreclosure on adjustable rate mortgages has been very considerable, in 
contrast with what has happened on fixed rate mortgages. As payments on 
adjustable rate mortgages have reset, many homeowners have had their 
monthly payment increase substantially. On average, a $1,200 monthly 
mortgage payment has increased by $250 to $300. Among homeowners with 
subprime adjustable rate mortgages, the percentage that was either 90 
days past due or in foreclosure has more than doubled from 6.5 percent 
in the second quarter of 2006 to 15.6 percent in the third quarter of 
2007. The percentage of homeowners with prime adjustable rate mortgages 
who are either 90 days past due or in foreclosure has more than 
tripled, from less than 1 percent in the second quarter of 2006 to 3.12 
percent in the third quarter of 2007.
  Contrast this with delinquencies and foreclosures among homeowners 
with fixed rate mortgages. The percentage of homeowners with fixed rate 
mortgages who are either 90 days past due or in foreclosure has 
increased only slightly from 5.72 percent in the second quarter of 2006 
to 6.61 percent in the third quarter of 2007. Similarly, among 
homeowners with prime fixed rate mortgages, the percentage who are 
either 90 days past due or in foreclosure has only increased from .63 
percent to .83 percent.
  The point of all this is that adjustable rate mortgages have created 
an enormous problem for many homeowners. But that has not occurred 
where there are fixed rate mortgages. So it hardly seems to me that 
Arlen Specter's language is ``worse than useless.''
  It hardly seems that my proposal is counterproductive or that it 
creates the image of action and response but does nothing.
  The fact is, it attacks the very core of the serious we face today 
problem. On one point the Senator from Illinois and I agree--we have a 
very serious problem. I wish to see this Senate address it. The fact is 
we could use some constructive work around here. May the Record show 
the Senator from Illinois nods in agreement. So we have quite a few 
points here that are not totally Arlen Specter useless.
  Mr. DURBIN. May I ask the Senator a question through the Chair?
  Mr. SPECTER. I don't mind the presumption if the Senator will use his 
microphone.
  Mr. DURBIN. It is not turned on. Now it is turned on. I wish to 
respond through the Chair and not take anything away from Senator 
Specter's time; that any time I use be taken from me. I will be very 
brief.
  Mr. SPECTER. I will finish in less time than the Senator from 
Illinois used when he said he was about to finish. I only wish to say 
that I hope we will take it up in the Judiciary Committee this week and 
report it out of Committee, which is what ought to be done before it 
comes to the floor. Then perhaps we will have more time for an extended 
debate.
  I will be glad to hear the response from the Senator from Illinois.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. DURBIN. Mr. President, I thank the Senator from Pennsylvania for 
his effort to cooperate and with me.
  First, he is concerned about the impact on interest rates if my 
bankruptcy provision goes through. Understand, it only applies to a 
fixed, finite, limited group of adjustable rate mortgagees who are 
facing foreclosure and going to bankruptcy court. The up-side estimate 
is 600,000. I think more realistically 400,000, 500,000 would qualify.
  To suggest we are changing the policy of mortgages in America and 
will precipitate higher interest rates for all Americans from this 
point forward does not apply. We are dealing with a specific emergency, 
a specific crisis, and a specific response.
  I will readily concede with some humility that my remarks were harsh 
and perhaps strong in relation to the Senator's amendment. But I will 
tell him why I felt that way and why I reacted that way.
  There is one point in his amendment that he has not said on the 
floor. He gives the bank the last word. The bank makes the decision 
whether the mortgage is going to be changed. As long as the bank has 
the last word, nothing is going to happen. There is not a thing that 
bank cannot already do today in renegotiating the terms of the 
mortgage, and they are not doing it.
  I have said to the Senator from Pennsylvania that I think that is the 
critical element, the critical difference in our approach. I believe 
the bankruptcy court should have the last word. The Senator from 
Pennsylvania believes the mortgage bankers should always have the last 
word. I don't think that is a reasonable way to approach it.
  In terms of the number of adjustable rate mortgages, they are the 
problem. Six years ago, some estimated that about one out of twelve 
faced foreclosure. Today the estimate is one out of two. Clearly, the 
problem needs to be addressed. I tried to narrow my amendment so it 
addresses those now, it does not have a long tail to it, and does not 
give the bank the last word.
  Mr. SPECTER. Mr. President, the conclusive response to the argument 
by the Senator from Illinois is that my bill allows the court to reduce 
the principal on a mortgage--a so-called cram down--if the bank agrees 
and if it is indicated by the facts. What the Senator from Illinois 
failed to note is that my bill gives full leeway to bankruptcy courts 
to adjust interest rates--which the Senator from Illinois has already 
acknowledged is the real problem.
  Under current law, the court does not have the power to reduce the 
principal

[[Page 2970]]

on a mortgage. So I added the provision that if the lender were in 
agreement, and if it makes sense in many cases this option will cost 
less than foreclosing--then extend the authority to court to make that 
adjustment.
  Mr. President, how much time remains of the 30 minutes?
  The ACTING PRESIDENT pro tempore. The Senator has 21\1/2\ minutes 
remaining.

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