[Congressional Record (Bound Edition), Volume 154 (2008), Part 4]
[Senate]
[Pages 5315-5316]
[From the U.S. Government Publishing Office, www.gpo.gov]




                             HOUSING CRISIS

  Mr. ISAKSON. Mr. President, I come to the well specifically today to 
talk for a few minutes about the tax credit proposal that is included 
in the base bill as introduced by Senators Dodd and Shelby and approved 
by the Finance Committee, Senator Grassley, and Senator Baucus. To that 
end I want to pay particular thanks to the staff of the Finance 
Committee for the tremendous work they did with respect to the housing 
tax credit amendment which is now part of the base bill.
  I come here today, though, to correct some misinformation that has 
been appearing in the media particularly over the past weekend and in a 
couple of national publications and Washington newspapers with regard 
to the housing stimulus and tax credit being inappropriate or wrong. 
The presumptions of those who have written are absolutely inappropriate 
and wrong. Although they are attempting, I am sure, to contribute to 
the debate, they are in fact contributing to a tremendous 
misunderstanding about the reality of what the tax credits will do.
  For the sake of discussion, the tax credit is a $7,000, $3,500-a-year 
tax credit that goes to any family who buys and occupies as their 
residence any home that has been foreclosed upon or is owned by a bank 
or lender, new or resale, and any resale owned by an owner occupant who 
is fending foreclosure.
  There have been two comments made about what is wrong with this 
proposal that are exactly the opposite of what is really right about 
this proposal. No. 1, in one editorial it said it is rewarding people 
who did not pay their payments and punishing people who are making 
their payments. It is not rewarding anybody. If you are purchasing a 
foreclosed-upon house, the damage has already been done to the 
borrower. The family who didn't perform is not rewarded. In fact, they 
have already suffered their punishment. But everybody else in the 
neighborhood is suffering punishment because that vacant house sits 
there deteriorating and causing declining house values.
  Secondly, it does not punish the homeowner who is in their house 
making their payments because the truth is, that home owner is hurt 
more when a foreclosure sits vacant and unsold than it is when that 
property is taken, bought by a homeowner, reestablished, the lawn is 
kept, the values are stabilized.
  The fact is, we have an obligation at this critical time in our 
economy to do what we can to stimulate the market to solve our 
problems, not have a plethora of government solutions to problems. 
Stimulating the market to go back, absorb these houses, get them back 
in owner-occupied hands, get them out of REO inventory is precisely 
what we need to do.
  Now, I do not come to this opinion as someone who has no experience; 
I come to it based on experience 33 years ago, in 1975. I was in the 
business. The United States had gone through a serious decline in 
housing. We had a problem. We had a 3-year supply of new houses 
standing unoccupied on the market. Buyers retreated because they did 
not know where the bottom was. The economy went down. Everything was in 
a mess.
  Gerald Ford, a Republican President, and a Democratic Congress came 
to this very floor and introduced a $2,000-a-year tax credit to any 
family who went and bought one of those standing

[[Page 5316]]

vacant new houses only--not any house, the standing vacant new houses 
that were there, the problem houses. They passed the $2,000 tax credit. 
The market immediately responded. Within the 1-year window of 
opportunity for that credit, two-thirds of the standing inventory was 
absorbed, home values stabilized and began to go up, and the economy 
returned to vitality.
  So I ask those who are writing in criticism about a bill rewarding 
people who did bad things and punishing people who did it right, they 
are exactly the opposite; the damage has already been done when the 
foreclosure has taken place, and the reward is to stabilize 
neighborhoods for those who are in their homes and paying.
  I think the wisdom of the Finance Committee and the Banking Committee 
to incorporate this provision is an insurance policy that we in 
Congress can do good things to drive the market, to help solve 
problems. You hear all those problems about us making payments for 
people and doing things to take money from one American and give it to 
another in a time of trouble. That only postpones the inevitable. It 
does not solve the problem. But stimulating buyers back to the 
marketplace to absorb those houses that have been foreclosed upon or 
are pending foreclosure addresses specifically the housing crisis in 
this country, absorbs specifically the houses that are causing us 
problems, reestablishes values in our neighborhoods, and stabilizes the 
values of those people who are in their homes making their payments, 
doing what is right.
  So with all due respect to those who have opined over the weekend, 
they are absolutely incorrect and wrong in terms of the applications of 
this credit. It will, in fact, be a boost to the economy, a boost to 
the housing market, and a stabilizing factor on home values and 
equities in the United States of America.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Maryland.
  Ms. MIKULSKI. Will the Senator yield for a question?
  Mr. ISAKSON. I will.
  Ms. MIKULSKI. I have a question exactly about not only those 
headlines but what people have asked me over the weekend. I want the 
Senator to know, first of all, we value his extensive experience in the 
real estate field--he was a well-known realtor in his own community--
and, of course, his ongoing method of civility in this body.
  Here is my question: This is a $7,000 tax credit if you buy a 
foreclosed home in a neighborhood; is that correct?
  Mr. ISAKSON. That is right, $3,500 a year for each of the first 2 
years you occupy it as a resident.
  Ms. MIKULSKI. Here is the question: There are two houses for sale. 
One is a foreclosed property and one is a regular homeowner ready to 
sell. The question I get from non-profits and people is: Is the tax 
credit going to depress by $7,000 the house that is not in foreclosure? 
In other words, that it acts as a damper on price, and if you are in 
good standing, you have a good mortgage but you are ready to sell for 
whatever reasons, you are putting your house on the market, and next to 
you is a foreclosed house and that is going to get a $7,000 tax break, 
they are saying: I am going to have to eat $7,000 to sell my house.
  Can the Senator answer that question for me and for all who I think 
are puzzled about the possible unintended consequences of this tax 
break?
  Mr. ISAKSON. The Senator's question is right on target. My answer to 
you is not an opinion, it is a statement of what actually happened in 
1975. In 1975, there was no demand for housing because the plethora of 
houses that were on the market that had been foreclosed on that were 
built new were not being sold. Nobody was in the market. When the 
$2,000 tax credit was established and those houses began to be 
absorbed, the housing values stabilized. So there was not a 
disadvantage to the person who was trying to sell who was in the house, 
it was actually an advantage.
  The disadvantage you have right now is nobody knows where the bottom 
is. Because foreclosures are taking place, the values are going down. 
Those values, because of the cost-to-replace method of appraising, 
which is used by all lenders, decline the value of appraisals of houses 
that are pending on the market. It is a domino effect that affects 
everybody. The tax credit, by absorbing those houses that have been 
foreclosed upon and are vacant and are bringing down values, undergirds 
the market and raises those values for everyone.
  Ms. MIKULSKI. Stick with me.
  Mr. ISAKSON. I am here.
  Ms. MIKULSKI. Real-world situation. This house is foreclosed, which 
means it already is going on the market at a depressed value, OK? The 
consequence of a foreclosure is a melancholy event, not only for the 
person who is losing their home, but the community feels it could lose 
a neighborhood. I believe that is the gentleman's point, and it is also 
a great concern to me. But because the foreclosed house is already 
depressed, then a $7,000 tax credit comes in. The question is, for the 
non-foreclosed, I do not understand how the price of the non-foreclosed 
home is not dampened, and we, ourselves, are helping create a new 
bottom.
  Mr. ISAKSON. Well, two or three points. The first one I made is still 
the valid point; that is, as those foreclosures are absorbed, values 
stabilize and go back up, and that supports the values that were there 
in the neighborhood for the people who are making their payments, not 
in foreclosure. That is No. 1.
  Forget about the tax credit. You ride through any neighborhood where 
somebody is in a house that is in trouble and look at the sign. It will 
say ``Drastic Reduction.'' ``Reduced.'' ``Foreclosed Property.'' ``Fire 
Sale.'' ``Thirty Percent Discount.'' All you have to do is open any 
newspaper in any urban area in American, and you can read the 
classifieds and see that today. That is what is doing the terrible 
damage. That is because those numbers are growing. So if the incentive 
is to absorb those that have been foreclosed on, then you lessen that 
downward pressure, you underwrite the house values, and the 
neighborhoods begin to restore.
  Remember this: The tax credit is only good for a year. It is only a 
finite period of time to drive people to the market in hopes that they 
will absorb those houses because if they do not, the only way they get 
absorbed is through deeper discounts because regulators are going to 
force those lenders to dump them. The deeper the discount, the more 
depressed values are, and the more difficult it is for anybody to sell 
their house at a reasonable value.
  Ms. MIKULSKI. Well, first of all, I thank the Senator for explaining 
this. You can understand the origin of these questions. It is not only 
what I feel, but those working in our communities, those trying to sell 
homes, they all feel pretty much the same way. But I thank the Senator 
for answering that question, and we thank him for the expertise he 
brings to this debate.
  Mr. President, what is the parliamentary situation?
  The ACTING PRESIDENT pro tempore. The time for morning business is 
about to expire.
  Ms. MIKULSKI. Mr. President, I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Ms. MIKULSKI. I ask unanimous consent that the order for the quorum 
call be rescinded.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Ms. MIKULSKI. Mr. President, I ask unanimous consent that morning 
business be extended for 10 additional minutes.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.

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