Subprime Mortgage Crisis
Floor Speech
SUBPRIME MORTGAGE CRISIS -- (Senate - December 06, 2007)
Mr. DURBIN. Mr. President, I thank my colleague from New York, Senator Schumer, who has been a leader on this issue involving our Nation's crisis involving subprime mortgages. He has made constructive suggestions and was the author, with several colleagues, of an amendment to the Transportation bill that provided some $200 million for housing counselors--important advice and help for families facing foreclosure. I thank him for that leadership and for his remarks.
There has been a lot of talk on both ends of Pennsylvania Avenue about the so-called national mortgage crisis. It is more than a mortgage crisis; it is an economic crisis. This is a crisis for everyone facing foreclosure, for their neighbors who watch the values of their homes decline, for local governments that will see revenues from property taxes diminish, and for every company struggling to finance a business with the banking industry that has contributed to these foreclosures. It is a crisis for all Americans. It is time this administration woke up to that reality.
Over 2 million Americans are about to lose their homes to foreclosure, and 44.5 million Americans who live in their neighborhoods will watch the values of their homes diminish. A home for many families is their most important and valuable asset. Through no fault of their own, many people will see that asset losing value. It will lose value at their expense. They know it.
We also know as well that homeowners living near foreclosed properties may see as much as $5,000 in the values of their home going down. I represent the State of Illinois. In the county of Cook, which is where you find the city of Chicago, we find some 29,000 foreclosures that are looming, and we estimate that some 2 million residences in Cook County will see their value go down as a result. That is two-thirds of the residences in the county of Cook, one of the largest counties in America.
I went to the West Side of Chicago recently with Alderman Bob Fioretti. We walked through a neighborhood where houses are boarded up because of foreclosure, where auction signs are out in the front yard.
Bob told me that many of these same townhouses were selling for $300,000 or more just recently, and now they are on the auction block for around $100,000. What does that mean for the neighbor who spent $300,000 on his home, and now watches an auction of the next-door neighbor's old house, at $100,000? It is bad news. It is bad news for America.
The U.S. Conference of Mayors projects that this crisis will result in 524,000 fewer jobs in America--that is pretty obvious from the housing industry alone--a drop in consumer spending, the loss of billions of dollars in tax revenue, and a slowdown of economic growth in America. This is not a small issue. It is a major issue when it comes to the American economy.
As the chief economist of Moody's Economy.com said yesterday in a hearing I chaired:
There is a substantial risk that the housing downturn and surging foreclosures will result in a national economic recession.
If what we face is truly an economic crisis, the response from this administration has been totally inadequate. We have convened summits to get the industry to agree that we have a problem. We have suggested refinancing guidelines to ease industry bickering about how to help people refinance. We have pressured the industry to reach out to borrowers early and help them before the families get too deep in debt. They are all positive steps. But Moody's reports that for most loan servicers, only 1 percent of the loans whose interest rates jumped in the first half of this year have been modified to help the homeowners continue to pay for their homes. Nothing beyond that meager industry response has been done by this Government to deal with this reality. That is completely inadequate. Much more needs to be done, and it must be done now.
Compare our situation to what happened in the late 1920s in America, when housing prices in another crisis dropped 30 percent. In 1932, Congress collaborated with the real estate industry to establish the Federal Home Loan Bank system, modeled after the Federal Reserve, to create a special lender of last resort for real estate. A year later, Congress modified bankruptcy law to allow insolvent wage earners to protect themselves from eviction. A year after that, Congress created the Federal Housing Administration which insured mortgages that were reasonable for the borrower by insisting on solid mortgage terms. In 1938, Congress created Fannie Mae, eventually leading to huge securitization of mortgages. Compare that to what we are talking about now: jawboning, some conversations, saying let's hope major parts of the industry decide they want to cooperate. That is not leadership. That is begging.
This list of Government actions taken 75 years ago highlights how little we have done to deal with this current economic crisis. Let me tell my colleagues what we proposed in this Democratic Congress: a bill by Senator Dodd, chairman of the Senate Banking Committee, to reform the Federal Housing Administration and make loans available to families who desperately need them; a bill by Senator Schumer, chairman of the Joint Economic Committee, allowing Fannie Mae and Freddie Mac to purchase more loans and provide more liquidity in the market; a bill I have introduced, allowing mortgages on primary residences to be modified in bankruptcy court as a last resort so that families don't lose their homes.
FHA. Fannie Mae. Bankruptcy. The Congresses in the late 1920s and the early 1930s understood the magnitude of the challenge and they acted. As for the Congress of this year, some of us get it, but unfortunately, our efforts to pass this legislation have in many instances been stopped by the Republican minority. That is unfortunate. It is a pattern that has emerged in this Congress. The floor of the Senate has been virtually empty this week. We haven't seen Senators come to the floor proposing important legislation to deal with America's economic crisis and to take seriously the economic challenges facing families. No. Once in a while, a Republican Senator comes to the floor to try to stop the business of the Senate. Under the arcane Senate rules, they can do it, and they have done it.
We tried to bring up the alternative minimum tax. It is a tax which is creeping forward and enveloping more and more taxpayers every year. Some 19 million Americans will be hit by this tax, which was never the intention when it was created. We wanted to bring a bill to the floor this morning, a bill to change this and protect those taxpayers. The vote on the bill was 47 to 47. Not one single Republican Senator voted to stop the alternative minimum tax from hitting 19 million Americans. Not one would cross the aisle. Why? There is no reason. No reason was given, other than the fact that time and time again, the Republican minority wants to stop the business of the Senate, whether it is a tax that needs to be reformed or a mortgage crisis that needs to be addressed. Time and time again, the Republicans are using yesterday's tactics of obstruction, yesterday's tactics of creating obstacles, when America wants bipartisan cooperation and compromise. That is why we are here.
The Democrats have a scant majority--51 to 49. Under the Senate rules, there is not a lot we can do. It takes 60 votes for important decisions. The Republicans know it, and they are determined to stop any progress when it comes to solving America's problems. We want change. We want to move forward. They are stuck in the past--yesterday's party using yesterday's tactics. The American people are watching.
Well, let me say that this administration has come forward with a plan dealing with the mortgage issue. It is short-term relief to deal with exploding interest rates for some families. It is good, but not good enough. From the details we received thus far, it has been reported that only 12 percent of subprime borrowers--about 240,000 homeowners--will be eligible for this help. That is unfortunate. Twelve percent. When we have over 2 million--maybe 3 million--Americans facing foreclosure, we are going to only help one out of eight. That is it? That is as good as it can get? I don't accept it. Even fewer may be helped, we may find out eventually. After jumping through all the hoops, we may find that it may be a 10-percent solution for some. Not good enough.
One of the millions of people who will still lose their home even if the Bush plan is adopted is Nettie McGee, who I met a couple of days ago. What a great lady. Nettie McGee is 73 years old. She lives on the south side of Chicago. She worked real hard during her life in a picture frame factory. She retired, and at the age of 65 her dream came true. For the first time in her life, Nettie McGee was able to buy a home. She is so proud of it. She talks about that home. She came to us yesterday in a hearing and told us what it meant to finally have her dream come true. Well, she ran into a problem. It turned out her backyard wasn't on the same tax bill as her home. She got notice in 2005 that the taxes hadn't been paid on the backyard because they were being sent somewhere else. She didn't know it. She was $5,000 in debt to pay her property taxes. This poor lady didn't have it. She was living on Social Security. She saw an ad on TV--we see them all the time--you can get a mortgage; you can refinance. She called the number.
The next thing you know, the next day up pops a fellow who says: Oh, we can answer all your prayers. We are going to provide you $5,000, and we are going to refinance your house. Well, Ms. McGee said she was invited to a closing. Think of how fast this was moving. The following week she went to a closing. She said that in less than 15 minutes they shoved 40 pages in front of her and kept turning the pages and said, keep signing, keep signing, keep signing, and she did. She walked out the door with the money she needed to pay off her taxes. She felt pretty good about it. She went home and started making her payments. Everything was fine until 2 months ago when they called her and said: Incidentally, Ms. McGee, those papers you signed mean you have an adjustable rate mortgage now. It is not a fixed rate mortgage. Instead of paying some 7 percent, you are going to pay 10 percent in interest. That meant that her monthly payments went up $200 a month. A Member of Congress may not miss $200 a month, but Ms. McGee will. The monthly payment which she is now required to make will take all of the money that is sent to her in her Social Security check. She is about to lose that home. After 10 years of living her dream, she is about to lose it. She is one of the victims we are talking about, because of the resetting of an adjustable rate mortgage.
One would hope Ms. McGee is the kind of person to be helped by the administration's suggestion on mortgages, but sadly, she is not. She wouldn't qualify, and that is sad. It tells you that this is a safety net that has too big a hole in it and that a lot of poor people are going to fall through.
I have a plan that will go further than the Bush administration plan. I want to change the bankruptcy laws for about a fourth of the people facing foreclosure who end up in bankruptcy court. I want to give them a chance. If they have enough income, the court can order changing the terms of the mortgage, the interest rate and the principal, no lower than the fair market value of the property as of the time of the bankruptcy, and by renegotiating the terms, the people may be able to stay in their homes.
What happens if the proposal I have made doesn't become law? Well, there will be a real foreclosure. They will have to leave their homes. Their homes will be sold on the market. For the lender, what does it mean when you go through foreclosure? It means $50,000 in debts from the foreclosure process. It also means facing the possibility--the very real possibility--that you are going to lose 20 to 30 percent of the value of the loan in a foreclosure sale.
That is the reality, and I hope we can change it. I hope that what we call a mortgage crisis today will become a crisis we respond to as a nation on a bipartisan basis: Congress and the President helping the American people realize their American dreams, live in their homes, and not see the value of their neighborhoods diminish.
Mr. President, I see Senator Brownback is here. I yield the floor.
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