U.S. Economic Conditions

Floor Speech

U.S. ECONOMIC CONDITIONS -- (House of Representatives - May 05, 2009)

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Mr. HIMES. Thank you to my colleague from Ohio for organizing this on this very, very important topic.

At one level what we're discussing is really very simple. Like every one of my colleagues standing here today, I have deep respect and appreciation for the power of the free market. It is the free market that has created the wealthiest society in the history of humankind. However, a free market requires smart regulation. We regulate dangerous things. We regulate tobacco, we regulate alcohol, we regulate firearms because we understand that used responsibly, they can enhance one's quality of life, but used irresponsibly, they can be devastating. And if there is one lesson that we have learned from this economic crisis, it is that an excess of debt can be devastating, devastating to individuals, to families, and, as we have learned much to our peril, to our country as a whole.

We have a long record, as my colleague from Ohio has pointed out, of attempts, failed attempts, to put in place over Congress after Congress, Republican-controlled Congress after Republican-controlled Congress, attempts to regulate the more excessive and predatory aspects of consumer lending that never saw the light of day.

But now we have an opportunity, a really terrific opportunity to pass commonsense legislation, which in many ways mirrors the very commonsensical legislation that we saw passed in strong bipartisan fashion last week around credit cards with respect to predatory lending.

H.R. 728 is a bill that will bring about a reform of the most predatory of practices. And it's hard, as you dive into this bill, to disagree with what is in there. The bill establishes a simple Federal standard for all home loans that simply says that lending institutions must ensure that borrowers can repay the loans they are sold. Now, in a free market, the market would bring that discipline to bear. But there are oddities within the housing market, subsidies, other incentives that mean, and we are all suffering from this today, that all too often mortgages are extended to families where the lender knows or perhaps doesn't know but didn't do the work but knows that the individual, the family cannot repay that mortgage. So how hard is it to conceive of a regulation that simply says that a lender must do the work to assure us and to assure the borrower and themselves as a lender that they can repay the loan?

Lenders would be required and mortgage brokers would be required, if a family qualifies for a prime mortgage, to not sell them a subprime mortgage. And this is a particularly pernicious aspect of the mortgage industry. We see it particularly in our minority communities where minority families who might qualify for the low rates associated with the prime mortgage instead are sold a subprime mortgage and therefore are paying hundreds, in some cases thousands, of dollars every month that they don't need to pay. Again, this bill would just assure that mortgage brokers and lenders are not financially incented to put people into mortgages that they don't need to be into. Good, commonsensical regulation.

This bill will also ask that our securitizers, and we know now that one of the aspects of the housing market that was a bit pernicious was that risk was just passed from one hand to another, sliced and diced, and the person who made the decision to take the risk by extending the mortgage a week later had no exposure to that risk. So we are asking that along the chain of custody of a mortgage, whether it's the broker, the lender, the securitizer, that people just do the very basic work to look at this stuff, to look at this stuff and to convince themselves that the law has been followed, that the policies are in place to make sure that you're not putting toxic paper into securities unknowingly, bringing some responsibility to a process which has been all too irresponsible for far, far too long.

This is commonsensical legislation, and I hope and expect that it will draw the same kind of bipartisan support that we saw for the Credit Cardholder's Bill of Rights last week.

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Mr. HIMES. Thank you for the opportunity. I want to highlight one other practice that would be prohibited by the antipredatory lending bill that is to come before the floor this week.

I spent many years as a vice president of the Enterprise Community Partners, a nonprofit affordable housing group and saw up close and personal the devastation that can be wreaked by a process, a product, if you will, known as asset stripping.

Asset stripping involves the extension of debt, either a mortgage or a home equity line, often to the elderly, often to minority populations, where the lender knows, the lender knows that there is no likelihood that either the senior citizen or the borrower, whoever that borrower may be, can repay that loan.

And it's very deliberate, because as a result of the loan, the lender knows they will come into possession of the home involved. They will take the equity in the home.

Now, in this world of declining real estate values, it's a little hard to understand that business model. But the reality is that ordinarily, when housing prices are rising steadily or less than steadily or more than steadily, as we saw in the last 10 years ago, that can be a very profitable business model based on the expectation that the borrower will fail. That is not the kind of product that anyone on either side of the aisle thinks should be out there victimizing, particularly the high concentration of the elderly and the minority borrowers who get caught up in this thing.

Asset stripping is a pernicious thing that would be forbidden by this antipredatory lending bill, and I think we should take great pride should that occur should this legislation pass.

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