[Congressional Record (Bound Edition), Volume 161 (2015), Part 9]
[SENA]
[Pages 12120-12123]
[From the U.S. Government Publishing Office, www.gpo.gov]




                            DODD-FRANK BILL

  Mr. BROWN. Mr. President, during the financial crisis, $13 trillion 
in household wealth was erased. Nine million jobs were lost, and 5 
million Americans, 5 million families and individuals lost their homes. 
The financial services industry has bounced back, and far too many 
American families have not.
  While many in Washington may have forgotten the financial crisis, 
millions of Americans haven't forgotten how predatory lending practices 
contributed to the housing bubble and helped spark this crisis. For 
them, this was the crisis.
  Unscrupulous lenders offered loans that required no documentation, 
loans with teaser interest rates that later spiked and undermined a 
borrower's ability to repay, and loans where borrowers never paid down 
their principal. Borrowers with these higher cost loans were foreclosed 
upon at almost triple the rate of borrowers with conforming 30-year 
fixed-rate mortgages.
  The crisis revealed a host of other harmful practices, such as 
steering borrowers to affiliated companies, kickbacks for business 
referrals, inflated appraisals, and loan officer compensation based on 
the loan product that they peddled. These practices offered little 
benefit to the borrower. They were not about helping those families 
purchase a home they could afford. It is no coincidence that as 
borrowers' costs increased, so did loan officers' compensation.
  These abuses didn't start in 2007 and in 2008. In many communities, 
predatory lenders began moving in a decade or more before the crisis.
  In Ohio, the housing crisis was a slow burn rather than the boom and 
bust cycle that happened in States such as California and Arizona. From 
1995 to 2009--think about this--my State of Ohio had 14 consecutive 
years where there were more foreclosures than the years before. For 14 
years in a row, the number of foreclosures went up and up and up--14 
years in a row.
  My wife and I live just south of Slavic Village in Cleveland, ZIP 
Code 44105. I mention that ZIP Code because in 2007, that ZIP Code had 
the highest foreclosure rate of any ZIP Code in the United States of 
America. This wasn't because of speculation. This was a declining 
industrial base, and this was the kind of predatory lending that tended 
to settle and sink its talons into communities like Slavic Village. 
Government policies favoring finance over manufacturing caused steel 
mills across Northeast Ohio and the rest of the country to shut down 
and force people to look elsewhere for work. Between 2000 and 2010, the 
population of Slavic Village dropped 27 percent, down to 20,000 people, 
and then the subprime lending industry moved in. By 2006 more than 900 
of Slavic Village's 3,000 properties--900 out of 3,000--were in 
foreclosure. If the home next door to you is foreclosed on and 
abandoned, you can bet the value of your home begins to decline 2 
percent, 3 percent, 4 percent, and then the one across the street and 
then one down the street. One can see what happens to this 
neighborhood. One in three Ohioans in the height of the crisis--one in 
three Ohioans' mortgages were underwater. One in every seven 
mortgageholders was 30 days delinquent or in foreclosure.
  Behind every foreclosure is a painful conversation. We don't think 
much about that here. We think of numbers, policies, and statistics. 
But imagine if you are a mother or father, and you have a 12-year-old 
or 13-year-old son and daughter. First, the mother loses her job. 
Things change around the house. You begin to cut back on things. You 
begin to take money out of the college fund to send your kid to 
Cuyahoga Community College. Then the husband loses his job. Then you 
have to have that discussion. There were 5 million discussions like 
these that went on in these homes where there were foreclosures. You 
have to explain to your son or daughter: We aren't going to be living 
here. We can't afford this house. We are leaving the neighborhood. You 
are probably going to a different school. We don't know where we are 
moving. We are going to have to find a new place to live. Maybe we are 
going to have to give away the family pet. There is a shelter in Parma, 
OH, that

[[Page 12121]]

went from 200 to 2,000 dogs and cats that they were housing because so 
many people gave up their pets because of the foreclosures that so many 
families endured.
  We came together as a result to pass Wall Street reform so families 
would no longer be forced to upend their lives because a mortgage 
company preyed upon them. Dodd-Frank established a commonsense rule 
that requires lenders to ensure that borrowers have the ability to 
repay their home loans. We created a consumer protection bureau to make 
sure that never again would consumers be an afterthought.
  Much of the CFPB's important work has centered around mortgage 
regulation. Their rule to streamline forms will help inform consumers 
to understand what is happening at the closing table.
  The ability to pay. A qualified mortgage rule balances the need for 
mortgage credit with the need of documentation of income and other 
borrower protections.
  We know there is more to be done. We must ensure that small lenders 
and community institutions can remain competitive. We know how bank 
concentrations become more and more of a problem. We must provide 
homeowners with protections from a broken servicing model that has 
harmed so many of our communities. We must ensure broad access to 
affordable housing--the right thing to do for families and communities. 
We must move forward. We know there will be a clear choice.
  As we move forward, we know there are two paths to follow. We can 
accept the false narrative that inaccurately blames low-income 
borrowers in the Federal programs, FHA, VA, to maintain their 
underwriting standards during the boom. In other words, we can blame 
the victim. We can say: Oh, it was the homeowners who caused this. It 
was the people who got the mortgages. It was all their fault. They 
weren't smart enough and they were so irresponsible. And we can blame 
the government because it is always the government's fault or we can 
recognize there were flawed incentives encouraged by a lack of 
regulatory oversight at the heart of our Nation's financial system--
flawed incentives that made risk-taking more profitable, flawed 
incentives that increased loan officers' compensation when they made 
loans they should not have been making.
  We can maintain the 30-year fixed mortgage that has made 
homeownership more affordable and given so many families an asset upon 
retirement. We can preserve a strong government role in the mortgage 
market, but instead too many in this body want to undermine the reforms 
that we put in place 5 years ago. Republicans and their allies in the 
financial industry fought Wall Street reform every step of the way. 
They have been attacking these consumer protections since the day they 
began.
  We have to remember what a top financial services lobbyist said. The 
day the President signed Dodd-Frank, the top lobbyists in the financial 
industry said: Well, folks, today is half-time. Today is half-time, 
meaning, OK, we lost in Congress, but we are going to keep pushing 
these agencies. We are going to keep lobbying Congress. We are going to 
try to roll back these rules. We are going to stop these rules. We are 
going to dilute these rules and make them ineffective.
  The bill my Republican colleagues today on the Appropriations 
Committee brought in--Senator Coons will talk about that. The bill the 
Republicans brought into Senator Merkley's and my banking committee 
isn't a narrower targeted effort at reform for small banks. It is a 
sweeping overhaul that rolls back Wall Street reform. Once again, they 
want to undermine consumer protection. They want to use small Main 
Street institutions as cover, but in the end they want to allow special 
interests and their allies to undermine reform and leave the American 
people exposed to the problems that happened less than a decade ago. It 
is unconscionable that this abuse was ever allowed in the first place.
  Senator Merkley, a leader on this issue, especially in the Volcker 
rule, will speak about his efforts and what he has seen in the past and 
particularly looking forward to the future about what we do about 
predatory loans and people and banks preying on consumers.
  The PRESIDING OFFICER. The Senator from Oregon.
  Mr. MERKLEY. Mr. President, I appreciate the leadership of my 
colleague from Ohio, who has brought such a focus on ending predatory 
activities, helping our financial system work for working Americans. 
Indeed, that is certainly what all of our effort is about on the fifth 
anniversary of the Wall Street reform bill, the Dodd-Frank bill. My 
colleague was talking about the Humble Home mortgage, which was turned 
into a predatory instrument that instead of building the wealth of the 
middle class of America was designed to strip that wealth. There was 
the two-year teaser rates in which interest rates would go from 4 
percent to 9 percent, more than doubling. Liar loan underwritings, in 
which the loan is way too large for a family, were given to a family 
just to reap the immediate benefits on behalf of the mortgage broker: 
the immediate commissions, steering payments and kickbacks that were 
paid to mortgage originators to steer their clients from the prime loan 
they qualified for into the subprime loan.
  Now, thankfully, as the Senator from Ohio outlined, we have ended 
those predatory practices and we must not let those practices return.
  Homeownership has been the foundation for middle-class wealth--
homeownership, education, and good-paying jobs. We cannot take away 
homeownership as a significant part of the American dream, the dream to 
control your own space, the king or queen of your own castle, and 
certainly to build the equity that puts your family on a strong 
financial foundation.
  Wall Street added to this particular story because they took these 
predatory teaser rate loans and put them into securities. One can think 
about securities as a box full of mortgages. Those mortgages generate a 
certain cashflow, and you sell the cashflow. That is what a security 
is. So these securities were only as strong as the mortgages that were 
in the security box, and those mortgages were deeply flawed. When the 
interest rate went from 4 percent to 9 percent, a family's payments 
doubled. They weren't able to make their payments because the 
underwriting had been inappropriate from the beginning, and they 
weren't able to get out of the loan because there was a prepayment 
penalty if they tried to get out of the loan. That was a steel trap 
that locked families into these inflated interest rates and eventually 
destroyed their finances. So we ended all that.
  Think about what Wall Street did. They took these mortgages and set 
up a securities waterfall--AAA, AA, and so forth. They got ratings on 
these securities as if these home loans were the same sound, good home 
loans of the past, not these new steering payment, prepayment penalty 
teaser-rate loans that had started to become so common and such a 
different instrument. Wall Street said we will make a lot of money 
selling these securities.
  Indeed, there were a couple other factors that came into play. Not 
only did credit agencies give them great ratings despite the underlying 
flaws, but there was also insurance that could be bought to protect the 
security in case it would fail. It was called a credit default swap or 
CDS. For a few cents you could buy insurance to make sure the security 
was good. Of course, insurance is only as strong as the insurance 
company behind it, and the purchasers didn't know the details of that 
because it went through the middlemen in Wall Street. It turned out 
that AIG, the American Insurance Group, was issuing this insurance in 
vast quantities, not doing what an insurance group normally does, which 
is set aside reserves to cover potential losses. Indeed, they were just 
on a short-term upward--hey, we can sell these insurance policies 
called CDS or credit default swaps for a ton of money for short-term 
profits and long-term irresponsibility.
  So let's fast-forward from 2003, when the predatory loans came into 
popularity, and now we are in 2008 and mortgages are starting to fail, 
the securities are starting to fail, and then of

[[Page 12122]]

course the insurance on those securities failed. Meanwhile, you have 
investment houses. For example, Lehman Brothers in 1998 had $28 billion 
in proprietary holdings, and by 2006 that had expanded to $313 billion 
against a capital base of just $18 billion in common equity. Think of 
that leverage--$313 billion in holdings and a base of $18 billion. That 
enormous leverage meant that if there was just a slight decline in the 
value of the products they were holding, then the whole firm was going 
to come tumbling down. Because these securities started to fail, they 
didn't have just a slight decline, they had a big decline. Suddenly, 
you have a major investment house, Lehman Brothers, out of business.
  That sent shock waves through our entire financial enterprise because 
a lot of the financing--short-term financing--was done through 24-hour 
financial transactions called repurchase agreements or repo agreements. 
Repurchase agreements--you sell an asset for 24 hours, you get the 
money, you buy it back 24 hours later, and then you resell it. That 
means every 24 hours you have to come up with the cash to buy back this 
repo financing. When the underlying value started to go down, the 
company couldn't come up with the funds to execute the repurchase 
agreements, so they had to do a fire sale of their assets. Well, if 
they do a fire sale of their assets, that means for every other company 
that has similar products, the value of their products now goes down 
the tube overnight, and then they have problems. So you have a domino 
effect--a contagion that spreads through the financial industry.
  Let's trace this back in simple circumstances. You had healthy 
homeowner loans, fully amortizing fair loans replaced by predatory 
teaser-rate loans leading to securities based on these faulty predatory 
mortgages. These securities became a major financial instrument. That 
financial instrument collapsed when the mortgages collapsed. There was 
a domino effect, a contagion that brought down our entire financial 
house.
  The American worker was on the losing end of this house of cards. 
American workers lost their jobs. American workers lost their 
retirement savings. These American workers often lost their homes 
because after losing their jobs, they couldn't pay for their home or 
because the teaser-rate mortgage doubled in monthly payments, they 
couldn't make those monthly payments.
  That type of destruction in which Wall Street casinos fared so well 
and American workers were so destroyed must not happen again. That is 
what the Wall Street reform bill is all about. On the fifth 
anniversary, we have ended through the Volcker rule the proprietary 
trading that was basically large hedge funds embodied within banks 
being essentially done on the backs of Federal deposit insurance; that 
is, the government was insuring the banks that were engaging in these 
highly leveraged hedge fund operations. That is just wrong.
  If you want to operate a hedge fund, absolutely, get your investors, 
place your bets, and if you go down, the investors go down, but the 
banking system doesn't go down. We must not allow these highly 
leveraged hedge funds to be operating inside of our core banking 
system.
  The phrase that was often used as we were working on this 5 years ago 
was ``Let's make banking boring again.'' Take deposits, make loans, and 
through those loans fuel the success of our families and our 
businesses. But if you want to be a high-risk investor, do it somewhere 
else.
  That is the core story about shutting down the Wall Street casino. 
This is the Wall Street casino before the Dodd-Frank Wall Street reform 
bill: Sorry, we are closed; afterwards: Well, I am not sorry they are 
closed because we have rebuilt a financial system designed to work for 
working Americans, and that is a good thing.
  I look forward to turning this over to my colleague from Delaware.
  The PRESIDING OFFICER (Mr. Gardner). The Senator from Delaware.
  Mr. COONS. Mr. President, I would like to thank my colleagues from 
Ohio and Oregon, as we come to the floor today to talk about the 5 
years since the passage of the Wall Street reform bill--better known as 
Dodd-Frank--and what it has meant for our States and for our country.
  It is no secret that Delaware, my home State, is also home to a very 
large financial services industry. The whole range of financial 
institutions--from small community banks and credit unions, to larger 
regional banks, to literally some of the largest banks in the world--
has a home in my State and employs tens of thousands of my 
constituents.
  So I understand it might be surprising to some to see me come to the 
floor and join my colleagues in defense of the broad and sweeping Wall 
Street reform bill that was enacted 5 years ago, but as a Democrat 
representing these workers in a State that benefits from a robust 
financial services industry, I also know how important strong, stable, 
secure, predictable capital markets and well-functioning and well-
regulated financial services are to a healthy economy from which we can 
all benefit. If we don't have a bank we can trust, we can't get a loan 
or buy a home or finance an education--investments that can serve as 
foundations to a brighter future for our families. If we don't have 
robust capital markets, companies cannot get money they need to invest 
in people and products and services, in growth and in jobs.
  If you think of a world without functioning or reliable financial 
services, you can picture money sitting useless, unaccessible under a 
mattress. Without the roadways--the banks and financial services--to 
connect it, this money cannot move and an economy cannot grow. Quite 
literally, everything grinds to a halt.
  We don't have to look far to see an example of this sort of seizing 
up of a modern economy. Greece has recently experienced a devastating 
financial crisis where money stopped flowing into and out of their 
economy, banks limited the amount of cash people could take out, and 
the government prohibited people from sending money abroad. The result 
was widespread panic, disruption of day-to-day lives, and a deep 
distrust of banks and banking that will take a long time to heal.
  Capital markets and financial services that are well regulated and 
well run are important to us all. That is why we have to do everything 
we can to protect them. They make up a critical part of our Nation's 
economic infrastructure and lay the foundation for economic recovery. 
But just as streets need traffic lights and sharp turns need speed 
limits and bridges need guardrails, so, too, financial systems need 
fair and enforceable regulations. The alternative is what we saw just 5 
years ago--the near collapse of our economy.
  When the 2008 financial crisis unfolded, I was a local elected 
official in Delaware, not a Senator. As our mortgage system, our 
banking system, and our markets collapsed, I saw the real wreckage in 
my own home community. I saw thousands of folks who lost their jobs, 
who lost their life savings, who lost their homes, and the painful and 
lasting impact on them and on our whole community.
  The 2008 crisis proved that a poorly regulated market left everyone 
exposed to risk, from consumers to financial services workers. Worst of 
all, it sparked a widespread distrust in our economy and our banks both 
here at home and abroad that we are still working to recover from 
today. The devastation caused by the great recession proved our 
financial system needed stronger regulations to protect consumers, 
families, businesses, and to make sure our capital markets are liquid, 
trustworthy, and reliable globally to instill faith back into our 
economy and system.
  So I believe it was in our national best interest for there to be 
adopted fair, predicable rules to make sure we could all drive on the 
road safely, metaphorically, regardless of what size car we drove or 
what side of the road we were driving on. That is why, 5 years ago, in 
the wake of the worst financial crisis since the Great Depression, 
Congress's groundbreaking Wall Street reforms needed to become law. 
Those reforms took important steps to

[[Page 12123]]

strengthen the rules of the road and prevent another significant crisis 
for our economy.
  Congress created an agency, the CFPB, or Consumer Financial 
Protection Bureau, with a simple important mission: to protect 
consumers from abusive financial products. By helping to ensure that 
consumers have accurate financial information about the risks and 
benefits of financial products, CFPB works to prevent risky lending 
practices. An essential feature of CFPB is that it is an independent 
agency with only one responsibility; that is, protecting consumers.
  Second, Wall Street reform limited risky and unsafe investment 
practices at the highest levels of finance. It set strong capital 
standards so banks have a sturdy backstop in times of need and ensured 
that regulators have the tools to scrutinize banking practices that are 
far more complicated than ever before--in fact, at the very limits of 
what is capable of regulatory oversight.
  Congress required banks to perform risk testing, to improve oversight 
and make sure they can withstand turbulence in the same way first 
responders are required to perform regular safety drills to make sure 
everything works properly in the case of a crisis or a fire. Banks are 
now required to make sure they have the protocols and the policies and 
the resources in place to respond effectively to a renewed financial 
crisis.
  Last, the financial crisis made it clear that although there is much 
we can do to limit risk and protect consumers, banks--particularly big 
banks--can still fail. When they do, it is critical they are wound 
down, they are resolved, they are closed in a way that is responsible, 
does not spread contagion and harm the larger economy, and does not 
require an expensive taxpayer bailout. That is why Wall Street reform 
gave the government new abilities to responsibly wind down banks so 
they do not cause a financial earthquake, much in the way the 
government has done with smaller banks through the FDIC for more than 
80 years.
  While I believe these reforms took much needed steps toward making 
sure our financial system is strong and healthy, I also believe we can 
build upon these reforms.
  One of its key authors, Senator Dodd, said just yesterday--former 
Senator and Chairman Dodd said just yesterday at a public event: It 
wasn't the Ten Commandments that was crafted; it was a law, and a law 
that needs to be improved.
  I know it might be difficult to believe Democrats and Republicans can 
find common ground on Wall Street reform, but there are, in fact, 
changes we can agree on that will make sure these reforms protect 
consumers and financial services. For example, we ought to lighten the 
regulatory burden on community banks so smaller banks can provide 
lending that their neighborhoods really need to grow and thrive. That 
is why Senator Merkley and I have cosponsored Senator Brown's important 
bill, the Community Lender Regulatory Relief and Protection Act, which 
would help smaller banks by streamlining exams, by helping credit 
unions develop more diverse sources of capital, and by reducing onerous 
privacy notification rules.
  Many of the proposals in this bill have bipartisan support. I am 
eager to work with my colleagues to implement those and other 
improvements. But unfortunately, rather than looking for ways to 
strengthen and sustain the broad architecture of Wall Street reform, 
too many of our Republican colleagues have continued to try to roll 
back the clock. We have seen how Republicans in the House have 
continued efforts to dismantle these bills, in particular in recent 
appropriations legislation. They have supported significant, harmful 
cuts to the regulatory agencies that are charged with rulemaking and 
with oversight--the most important entities in the financial services 
realm. They have also tried to undermine and undercut the CFPB's 
independence.
  Just today, Senate Republicans have proposed similarly misguided 
legislation. I plan to do everything I can to protect those agencies 
and stop efforts to fundamentally undo important Wall Street reform.
  It is time for my colleagues to stop proposing spending bills on a 
wide range of the subcommittees of the Appropriations Committee that 
have no chance of passing and that continue to push us closer to an 
inevitable government shutdown that would devastate our economy and I 
think cause real harm to our working families. I have heard those very 
same colleagues argue that by doing so, they are on the side of banks 
and they are on the side of increasing the forward growth of our 
economy and that is why they want to dismantle regulations. But what I 
hear from business leaders and bank leaders in my home State is that 
the biggest threat they face are more manufactured crises here in 
Congress that chip away at the confidence in the American economy that 
serves as a bedrock of our prosperity.
  As the leading Democrat on the committee charged with overseeing the 
financial services funding bills here in the Senate, I think it is 
critical that we work together to improve Wall Street reforms where we 
can rather than reverse what progress we have made. Whether you are a 
Republican or a Democrat, a consumer or a banker, a CEO or a small 
business owner, a family member or a financial services worker, we can 
all agree that we do not want another financial crisis. Nobody wants 
another bailout to banks.
  I strongly believe you can be pro-business, pro-financial services, 
and still believe in smart, strong, sensible regulation to keep 
everyone in our financial services system healthy and our overall 
system and economy safe. I believe a well-regulated financial system is 
critical to sustaining this sector into the future and ensuring that it 
is a trusted place for businesses and consumers to invest in from at 
home or abroad. A strong, secure, stable economy has long been the 
hallmark of America's global leadership, so I think we must work 
together to make sure it remains that way for decades to come.
  Wall Street reform was the result of a lot of hard work and 
compromise just 5 years ago. I look forward to working with my 
colleagues to continue strengthening the financial rules of the road as 
we go further into the future together.
  I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The senior assistant legislative clerk proceeded to call the roll:
  Mr. CORNYN. 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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