WASHINGTON, DC-As the Senate considers legislation to help homeowners and to stabilize the housing market, U.S. Senator Bob Casey (D-PA) spoke on the Senate floor in support of the legislation. His remarks are attached.
“This legislation will provide some relief by creating new equity for homeowners, including safeguards so that the provisions are targeted to those who need help without offering a bailout or enticements for speculators and it will help restore confidence in our markets,” said Senator Casey. “More than one million homes are now in foreclosure, a new national record. Over 8,400 homes are entering foreclosure every day and unless we act, an estimated 3 million homes will enter foreclosure this year and next, and 2 million homes will be foreclosed upon in that time.”
The legislation includes the following key provisions:
GSE Reform legislation, which would create a new, effective regulator for the government-sponsored enterprises (GSEs) so that these vital institutions can safely and soundly carry out their important mission of providing our nation's families with affordable housing. In addition, this legislation would create a new program at the Federal Housing Administration (FHA) that would help at least 400,000 families save their homes from foreclosure;
The HOPE for Homeowners Act, which would establish a new initiative at the FHA to prevent foreclosures for hundreds of thousands of families at no cost to American taxpayers;
The S.A.F.E. Mortgage Licensing Act, which would create a federal registry and establish minimum national standards for all residential mortgage brokers and lenders;
The Foreclosure Prevention Act, which would provide assistance for communities devastated by foreclosures, foreclosure counseling for families in need, programs to help returning soldiers avoid foreclosure, FHA modernization, and mortgage disclosure enhancements; and
The Housing Assistance Tax Act of 2008, which would provide tax benefits for homeowners, homebuyers, and homebuilders aimed at helping the housing market recover.
Remarks of U.S. Senator Bob Casey
June 19, 2008
Mr. President, I rise today to talk about the state of the American economy in the midst of our current housing crisis, and the need for action here in Congress, not just for Wall Street firms, but for Main Street families and small businesses.
A little over a month ago, the Senate Banking Committee held a field hearing in Philadelphia and one of the witnesses was a subprime borrower. Her name is Jahaira Cruz Rivera, and in 2005 she and her husband purchased a home. She told her broker she wanted a fixed rate loan. She made out a family budget and was told she was getting a fixed payment of $925 per month. She told her broker she didn’t want anything exotic or anything with tricks that would change her payment, and that is what she was told she was signing.
Mr. President, I would like read from some of her testimony about what happened next. In her prepared testimony she wrote:
“Just 10 days later we received a letter in the mail stating that a mistake had been made at closing. The interest rate we were given was not going to be 7% but rather 10.95%. Our payments would not be $925 but rather $1200. We considered backing out then, but we had already moved into the home. Our children were settling in, to pack everything back up was something we could not do. We had already put so much money out. Fred and I decided that although we would struggle, we would make it.
Mr. President all of the evidence that has been taken by the Banking Committee in hearings stretching back over a year indicates that many of the homeowners who find themselves in trouble started with a story just like Jahaira Cruz Rivera’s. And this is not simply a problem in some cities.
The Keystone Research Center in Pennsylvania found nine counties in Pennsylvania where subprime mortgages make up more than 35% of all mortgages. One was Philadelphia. The other eight were: Cameron, Clearfield, Fayette, Forest, Jefferson, Monroe, Venango, and Warren.
Mr. President, for the benefit of my colleagues who may not know their Pennsylvania geography, these eight counties are all rural counties.
More than one million homes are now in foreclosure, a new national record. Over 8,400 homes are entering foreclosure every day and unless we act, an estimated 3 million homes will enter foreclosure this year and next, and 2 million homes will be foreclosed upon in that time.
Through the first four months of this year we have already lost 324,000 jobs. If previous recessions are any indication, we will lose many more before the end of the year.
Consumer spending is down, and consumer confidence is at an all time low. Energy and food costs are spiraling out of control for families and businesses alike.
The economist Robert Shiller has estimated that the subprime and foreclosure crisis could cost American Homeowners $6 trillion in lost household wealth from record foreclosures and falling home prices. That is $80,000 for every homeowner. Mr. President, the average American family makes just under $50,000 per year.
As banks take losses they have to cut back on other lending, creating the credit crunch. The loan that might go to someone starting small business will no longer be made. The person who does have good credit and has saved money for a down payment, will not be able to get a mortgage. Students will not be able to attend college next year, because private lenders who make loans that are 97% guaranteed by the Federal government are unable to use credit markets.
If our students can’t go to college and receive education or training, our condition will only get worse.
That is why we must pass this legislative package we are now considering. Let me quickly review what is in the bill.
GSE Reform legislation, which would create a new, effective regulator for the government-sponsored enterprises (GSEs) so that these vital institutions can safely and soundly carry out their important mission of providing our nation's families with affordable housing. In addition, this legislation would create a new program at the Federal Housing Administration (FHA) that would help at least 400,000 families save their homes from foreclosure;
The HOPE for Homeowners Act, which would establish a new initiative at the FHA to prevent foreclosures for hundreds of thousands of families at no cost to American taxpayers;
The S.A.F.E. Mortgage Licensing Act, which would create a federal registry and establish minimum national standards for all residential mortgage brokers and lenders;
The Foreclosure Prevention Act, which would provide assistance for communities devastated by foreclosures, foreclosure counseling for families in need, programs to help returning soldiers avoid foreclosure, FHA modernization, and mortgage disclosure enhancements; and
The Housing Assistance Tax Act of 2008, which would provide tax benefits for homeowners, homebuyers, and homebuilders aimed at helping the housing market recover.
Unfortunately, there are some Senators here who do not seem to see the need for action. They have opposed or sought to delay and block the provisions that are necessary to put a floor under the housing crisis and set the stage for the country to recover economically.
But this program is much more than that, and it is built upon safe and sound principles.
First, it creates new equity for homeowners, something Chairman Bernanke has said is a more effective way to avoid foreclosures, and the loans will be based on a family’s ability to repay. This means that not everyone will be eligible, but those that are will get affordable and sustainable loans.
Second, it is not a bailout for investors or lenders. Investors and lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure.
Third, borrowers will not receive a windfall. In addition to having to qualify and be able to repay, speculators will not be eligible – only owner occupied homes qualify, and borrowers have to share any new equity and future appreciation with FHA.
Fourth, it will not be paid for with taxpayer dollars.
Finally, this will restore confidence in our markets. The uncertainty in financial markets can only be addressed by providing certainty about what mortgages are worth, and the only way to do that is to restructure them and refinance them through the FHA.
And I would like to return to the story of Jahaira Cruz-Rivera. She had asked for and was told she was receiving a fixed rate mortgage with no tricks or gimmicks. Then, ten days after closing she found out that her interest rate would not be 7%, but was instead 10.95%, and that her payment would not be $925, but rather $1,200.
She and her husband sat down, and decided to tough it out anyway. I will now read from her testimony:
“Then, in 2007, the unthinkable happened. Our rate adjusted upward and our new payment was now $1,671 a month. A home we thought we were getting for $925 a month in 2005 is costing us nearly double that today. My husband works 16 hour days, 6 days a week, but still we are not able to keep up with the payment.
“We explored refinancing but now our credit is damaged and on top of that we have a prepayment penalty; if we do refinance we have to pay GMAC a huge fee upfront. We have been trapped into a terrible loan by greedy, predatory and fraudulent lending practices.
Mrs. Cruz Rivera has gotten some assistance from ACORN the Association of Community Organizations for Reform Now, and has negotiated a lower payment for now. But she has not been able to resolve the situation or get a long term affordable loan, let alone the one that she was promised. And unfortunately, most borrowers have not been able to get even the limited relief that she has.
Mr. President, this notion that we should not help these borrowers because some of them should have known better and now must suffer the consequences is called moral hazard.
It isn’t often that you hear economists talking about morality. In fact, the situation we find ourselves in today is a direct result of parts of the financial industry trying to maximize profit without regard to morality.
So I find it ironic that after a period of naked greed some are now concerned that stepping in to help the victims of that greed because of “moral hazard.” The hazard here is that in trying to teach these homeowners a lesson and by somehow judging them from the top of our hill, we will lose sight of real morality.
I am pleased to report that action has been taken by the city of Philadelphia. Earlier this month, the city announced a program that will specifically target borrowers who cannot afford payments on adjustable rate mortgages and are in danger of foreclosure. Any property schedule for sale by the local sheriff’s office will be referred to officials who will in turn negotiate with lenders and attempt to restructure the loan so that the borrower can afford the monthly payments.
This program shows what can be done when people focus on solutions, not judgment. I commend Mayor Nutter and the many housing advocates in Philadelphia that I have had the pleasure to meet that have been working for many months now to assist homeowners and communities that have been devastated by widespread foreclosures. I hope that state and local governments in Pennsylvania and across the country will look to Philadelphia as a model for solution-oriented thinking about the foreclosure crisis.
Mr. President, the time has come for this Senate to finally act and finally put a floor under the housing market.
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