Statements on Introduced Bills and Joint Resolutions

Floor Speech

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS -- (Senate - February 04, 2009)

By Mr. REED (for himself, Mr. Dodd, Mr. Kerry, Mr. Schumer, Ms. Stabenow, and Mr. Kennedy):

S. 376. A bill to provide rules for the modification or disposition of certain assets by real estate mortgage investment conduits pursuant to division A of the Emergency Economic Stabilization Act of 2008, and for other purposes; to the Committee on Banking, Housing, and Urban Affairs.

Mr. REED. Mr. President, today I introduce, along with Senators Dodd, Kerry, Schumer, and Stabenow, the Real Estate Mortgage Investment Conduit, REMIC, Improvement Act. This legislation could provide one of the keys to solving our national foreclosure crisis by unlocking mortgage securitization trusts so that more homeowners can stay in their homes.

In my own state of Rhode Island, 7.30 percent of all outstanding home loans are delinquent and 5.33 percent of all home loans are in the foreclosure process. This is the 10th highest foreclosure rate in the Nation, and the highest in New England. I have heard story after story of how difficult it is to get a loan modified or restructured if it is part of a mortgage securitization pool. As we have learned, part of the reason we are in the worst housing crisis since the Depression is that Wall Street firms packaged mortgages into pools and then sold different tranches of these pools to investors from all over the world. This diverse and convoluted ownership structure has made it difficult to get investor approval to modify or restructure them. Unlike in the movie ``It's a Wonderful Life,'' most families can no longer walk into their local bank to talk to George Bailey about modifying or restructuring their loan.

The Emergency Economic Stabilization Act of 2008 required the Treasury Department to use its new authorities to incentivize servicers toward more loan restructurings. However, it has become clear that additional legislation is needed to free servicers of these loan pools from conflicting requirements regarding modifications and provide them with the ability to sell mortgages to Treasury for foreclosure avoidance.

Many servicers, managing pools of loans for investors, are constrained by the trust agreements from modifying loans to a level that families can afford to pay or from selling the underlying mortgage loans. In other cases, servicers must obtain the approval of a significant number of the trust's beneficiaries or third parties in order to make changes to how loans within the pool are handled. However, the trust agreements also provide that servicers must amend the agreements if doing so would be helpful or necessary to stay in compliance with tax rules under the REMIC statute; REMIC status frees these securitization trusts from taxation at the entity level and therefore provides important benefits to its investors.

Under the REMIC Improvement Act, in order to keep their preferred tax status under the REMIC provisions of the Internal Revenue Code, servicers would need to modify their trust agreements to remove artificial restrictions that keep them from modifying loans that provide a greater return to investors as a whole than foreclosing would, and keep families in their homes to prevent entirely unnecessary foreclosures at the same time. This is a practical way for servicers to modify loans without undue fear of legal sanctions. This also would allow servicers to sell loans to Treasury for restructuring without having to obtain an affirmative response by a significant number of the beneficiaries of the trust if it was for the good of the overall trust. Participation in any Treasury program would be voluntary, but some of the key legal impediments to participation would be removed.

Additionally, the Treasury Department has not put in place a loan modification program, even after Congress gave it the authority to do so in the Emergency Economic Stabilization Act. Many experts believe such a program would be helpful in helping resolve the current housing crisis. The REMIC Improvement Act will ensure that Treasury uses its authority to set up a program to achieve broad-scale modifications and, where necessary, dispositions of foreclosed property.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

There being no objection, the text of the bill was ordered to be printed in the Record, as follows:

S. 376

BREAK IN TRANSCRIPT

Source