[Congressional Record (Bound Edition), Volume 155 (2009), Part 1]
[House]
[Pages 1511-1512]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              OUR ECONOMY

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
  Ms. KAPTUR. Mr. Speaker, our economy is far from healing. Economists 
believe that the proximate cause of our economic crisis is the housing 
foreclosure crisis. I agree. Thus, I want to help explain how the very 
banks the Executive Branch is bailing out have and continue to make 
money off our constituents through deceptive practices in the housing 
industry, specifically through the sale of those mortgages.
  I have a constituent in Sandusky, Ohio, who refinanced his home due 
to a divorce to an adjustable rate mortgage through an Ohio bank. But 
then, J.P. Morgan Chase Bank in New York bought the bank and closed the 
deal on the refinancing of the mortgage. Chase did not properly 
disclose to this gentleman that the rates were higher than what was in 
the original loan documents, which violates the Real Estate Settlement 
Procedures Act and the Truth in Lending Act.
  My constituent has paid and, to the best of my knowledge, is making 
regular payments on his mortgage to an escrow account; however, around 
last October, with the help of a lawyer, he served J.P. Morgan Chase a 
notice of rescission on his loan due to the aforementioned violations. 
His lawyer requested that Chase inform him of any interested parties 
and holders of his mortgage to properly notify them of his rescission. 
Chase has not properly answered his query, so the case is going to 
court.
  It is the belief of my constituent's lawyer that Chase cannot name 
the holder of the mortgage. His loan was sold to a bank which placed 
his mortgage in a loan serving pool. Then his loan was chopped up into 
parts, bundled, and sold as mortgage-backed securities to hundreds of 
large institutional investors. Involved are trust oversight managers, 
depositors, underwriters, trust administrators, investors, trust fund 
issuing entities, trustees. But who really knows who all are involved? 
But we know this: They all got a piece of the pie on the transaction.
  This loan pooling process, some would say a Ponzi scheme, for 
securitization of loans make one's head spin. But at its core is one 
thing: Lots of profit on the upside, and now lots of loss on the 
downside.
  I do not know if my constituent can rescind his loan, avoid 
foreclosure, save his credit rating and, therefore, his financial 
future, because he cannot properly notify the holder of the mortgage. 
No one knows who it is.
  My constituent's situation is not unique, and in fact the story 
reverberates from sea to shining sea. We bailed out the banks because 
of these very practices which created certain toxic assets; yet, the 
practices continue: People lose their homes, the economy is tanking, 
and the bailed out banks are filling their coffers, paying dividends, 
making acquisitions, giving bonuses, holding auctions of these 
properties.
  Furthermore, I would like to call your attention and include in the 
Record today's Wall Street Journal article titled, ``Lending Drops At 
Big U.S. Banks.'' According to the article, 10 of the 13 biggest 
beneficiaries of bailout monies who received $148 billion of our 
taxpayer money saw their outstanding loan balances decline by a total 
of $46 billion between the third and fourth quarters of 2008. That 
means they weren't making loans with the money they got. The intent of 
bailing out Wall Street by those who voted for it was to free up 
credit. They didn't do it. And, Federal regulators are aiding and 
abetting them.
  Rather than using the Federal Deposit Insurance Corporation and the 
Securities and Exchange Commission as the proper agency for mortgage 
resolution, what we continue to see is Treasury in charge, which is a 
revolving door between Wall Street and the highest levels of our 
government.
  Paul Volcker put out a report last week on behalf of the Group of 13, 
calling for nations to reform their pro-cyclical regulatory and 
accounting rules. Unless this is done, why would our government 
allocate one more penny of taxpayer funds to cleaning up the mess that 
Wall Street and Washington leaders have gotten us into?

             [From the Wall Street Journal, Jan. 26, 2009]

Lending Drops at Big U.S. Banks--Top Beneficiaries of Federal Cash Saw 
              Outstanding Loans Decline 1.4% Last Quarter

                           (By David Enrich)

       Lending at many of the nation's largest banks fell in 
     recent months, even after they received $148 billion in 
     taxpayer capital that was intended to help the economy by 
     making loans more readily available.
       Ten of the 13 big beneficiaries of the Treasury 
     Department's Troubled Asset Relief Program, or TARP, saw 
     their outstanding loan balances decline by a total of about 
     $46 billion, or 1.4%, between the third and fourth quarters 
     of 2008, according to a Wall Street Journal analysis of banks 
     that recently announced their quarterly results.

[[Page 1512]]

       Those 13 banks have collected the lion's share of the 
     roughly $200 billion the government has doled out since TARP 
     was launched last October to stabilize financial 
     institutions. Banks reporting declines in outstanding loans 
     range from giants Bank of America Corp. and Citigroup Inc., 
     each of which got $45 billion from the government; to 
     smaller, regional institutions. Just three of the banks 
     reported growth in their loan portfolios: U.S. Bancorp, 
     SunTrust Banks Inc. and BB&T Corp.
       The loan figures analyzed by the Journal exclude some big 
     TARP recipients that haven't reported fourth-quarter results 
     yet, such as Wells Fargo & Co.
       The overall decline in loans on the 13 banks' books--from 
     about $3.36 trillion as of Sept. 30 to $3.31 trillion at 
     year's end--raises fresh questions about TARP's effectiveness 
     at coaxing banks to reopen their lending spigots.
       ``It has failed,'' said Campbell Harvey, a finance 
     professor at Duke University's business school. ``Basically 
     we have dropped a huge amount of money . . . and we have 
     nothing to show for what we actually wanted to happen.''


                           Credit Constraints

       In a survey last month of 569 U.S. companies, Mr. Harvey 
     and researchers at Duke and the University of Illinois found 
     that 59% felt constrained by a lack of credit. Many of those 
     firms are shelving expansion plans and cutting jobs as a 
     result of funding shortages, according to the survey, which 
     is expected to be released this week.
       Bankers say it is unfair to expect them to funnel a large 
     portion of their government capital into loans so soon after 
     receiving it. They say it takes time to make prudent loans 
     and to attract new deposits that will allow them to lend out 
     their new capital efficiently.
       Demand for low-risk loans is also ebbing as consumers and 
     businesses rein in their spending and try to conserve cash, 
     according to bank executives. Even though mortgage rates are 
     down, for example, applications in the week ended Jan. 16 
     declined about 10% from the previous week, according to the 
     latest data from the Mortgage Bankers Association.
       Meanwhile, federal regulators have been pushing many banks 
     to set aside extra capital to cushion against losses. Bankers 
     say that is at odds with the government's encouragement to 
     make more loans.
       The fact that loan portfolios are shrinking at many of the 
     largest TARP recipients underscores how few strings Treasury 
     Department officials attached to the infusions. That has made 
     it hard to prevent banks from using the money to pay 
     dividends, make acquisitions and fund bonuses for top 
     executives.
       Federal officials argue that the downturn in lending would 
     have been much more acute without the TARP funding, and that 
     attaching additional strings to the money could have led 
     banks to make risky loans or to refuse to accept the 
     government capital.
       Obama administration officials acknowledge that TARP hasn't 
     managed to jump start lending as intended, and say they plan 
     to overhaul the program to address the shortcomings. TARP 
     recipients must submit lending data to the Treasury 
     Department by the end of January, though industry officials 
     don't expect the disclosures to divulge much more than what 
     banks already include in routine regulatory filings.
       Around the world, bankers are under pressure from 
     regulators and lawmakers struggling to prop up the financial 
     system. Politicians in the U.S. and overseas are ratcheting 
     up their rhetoric about banks needing to do their part. On 
     Sunday, Franz Muntefering, chairman of Germany's Social 
     Democrats, said in an interview with a German newspaper that 
     ``most of the bankers are competent and responsible, but 
     there are also some beatniks, pyromaniacs and gangsters.''


                           New Student Loans

       In a sign that banks are feeling political heat, Citigroup 
     is expected to announce Tuesday a plan to use some of its 
     TARP money to finance tens of billions of dollars in new 
     loans this year, according to people familiar with the 
     situation. The push will include credit cards, student loans 
     and mortgages aimed at specific segments of the population, 
     one person said.
       Of the $45 billion it got from the government, Citigroup 
     last fall invested $10 billion in Fannie Mae's short-term 
     commercial paper, which the company views as relatively low 
     risk, according to the person familiar with the matter. The 
     remaining $35 billion hasn't been put to use yet.
       Even critics of TARP's capital injections say that they 
     steadied financial institutions and soothed investors, 
     averting possible catastrophe. The first capital infusions 
     were announced about a month after Lehman Brothers Holdings 
     Inc. filed for bankruptcy protection, igniting fears that 
     other shaky financial companies could collapse.
       The fourth-quarter decline in overall loan volume at the 13 
     banks coincides with an industry-wide retreat from broad 
     swaths of consumer lending. Banks have scaled back on 
     mortgage lending, canceled or substantially reduced many 
     home-equity and credit-card lines and, in some cases, simply 
     stopped making certain types of loans unless they're 
     guaranteed by the U.S. government.


                             Recession Woes

       Despite dismal economic conditions, many bankers insist 
     they are making every good loan that they can. Bank of 
     America and J.P. Morgan Chase & Co., which got a combined $70 
     billion in government capital, said they originated a total 
     of $215 billion in loans in the fourth quarter. Their 
     combined loan portfolios shrank by about $28 billion in the 
     same period.
       Scott Silvestri, a Bank of America spokesman, said the 
     Charlotte, N.C., bank's loan balances declined in part 
     because more borrowers have been paying off their debts. In 
     addition, ``there were fewer opportunities to make high-
     quality loans because of the recession,'' he said. A 
     spokesman for J.P. Morgan declined to comment.
       The loan volumes that banks disclose publicly only reflect 
     outstanding loans on their books, many originated years ago, 
     not the actual amount of new loans made in a given quarter. 
     While several banks reported the amount of new loans they 
     made in the fourth quarter, they didn't disclose comparable 
     figures from prior periods.
       ``What you can't tell is how low they would have sunk in 
     the recession we're in were it not for the TARP money,'' said 
     Walter Moeling, a partner in the banking practice at law firm 
     Bryan Cave LLP.
       The overall decline in loan balances during the fourth 
     quarter reflects the huge hurdles and conflicting agendas 
     that need to be overcome before credit can start flowing 
     smoothly again.
       For instance, many banks have said they are using TARP 
     funds to cover current or anticipated defaults on a wide 
     variety of loans.
       At the same time, shareholders at many institutions have 
     demanded that they slim down their balance sheets to reflect 
     the new risk-averse environment.
       At BB&T, a Winston-Salem, N.C., bank that got $3.13 billion 
     from TARP, fourth-quarter lending volume rose about 2%, or $2 
     billion. While BB&T is making new loans, Chief Executive 
     Kelly King said the bank invested much of its taxpayer 
     capital as a way to earn a decent return while shunning risk.
       ``We parked it there, and will redeploy it as quickly as we 
     can, not in a panic,'' Mr. King said last week on a 
     conference call with analysts. ``We're not going to make a 
     bunch of bad loans.''
       The overall loan decline likely understates the magnitude 
     of the industry's retrenchment.
       In normal times, banks would make loans and then sell many 
     off to investors or financial institutions. But that practice 
     has ground to a halt, so more loans today are staying on 
     banks' books. As a result, some banks' loan portfolios could 
     appear larger than they would have in the past, even though 
     they aren't actually making more loans.
       Bank balance sheets also have been inflated as more 
     companies draw on credit lines that banks committed to before 
     the financial crisis erupted. Last fall, an increasing number 
     of borrowers started tapping those lines, banks say, either 
     because other types of credit were evaporating or out of an 
     abundance of caution.
       For example, KeyCorp, where total loan balances declined by 
     about $200 million in the fourth quarter, saw a $1.3 billion 
     leap in its commercial, financial and agricultural loans. 
     Chief Financial Officer Jeffrey Weeden said that was 
     primarily the result of clients dipping into their revolving 
     lines.
       KeyCorp, which is based in Cleveland and received $2.5 
     billion in federal capital, made or renewed $5.7 billion of 
     loans in the fourth quarter. But KeyCorp has stopped making 
     student loans unless they're backed by the U.S. government.

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