Delivered on the floor of the United States Senate

Mr. President, at this moment in the Senate, we are awaiting a bill that is being written by Senator Chris Dodd of Connecticut, the chairman of the Banking Committee, and Senator Richard Shelby of Alabama, who is the ranking Republican on that committee. It is an attempt to come up with a bipartisan bill to deal with the housing crisis in America. We hope this is going to be successful. We are anxious for this bill to come to the floor. It is needed--desperately needed. We felt at least this effort to work together on a bipartisan basis was a move in the right direction.

A few feet away from here in front of what we call the Ohio Clock out in the corridor, Senator Harry Reid, the Democratic majority leader, and Senator Mitch McConnell of Kentucky, who represents the Republican Members, had a joint press outing yesterday and announced this effort in the hopes that we can come up with a bill. This is overdue, and it reflects the fact we observed, over the 2 weeks of our Easter recess, that there has been a lot of activity in this country at the executive level when it comes to our economy and the housing crisis.

We all recall that the head of the Federal Reserve, Ben Bernanke, came forward and opened what they call the discount window for nondepository banks. To try to put that in common words, banks across the United States, which are regulated and are facing oversight by the Federal Government, have a way of borrowing money from the Federal Government so they are solvent and can continue to do their business.

A few years back, there was a change in what is known as the Glass-Steagall law, which gave nondepository banks--in other words, banks that are basically investment houses--lending opportunities, credit opportunities. There has been a dramatic increase in this activity. Much of that activity from nondepository banks has created credit across America but also has fueled the fires of this subprime mortgage crisis.

One of the major institutions, Bear Stearns, got into trouble a couple weeks ago and faced what appeared to be failure or bankruptcy. The Federal Government stepped in at that point and put a $30 billion guarantee so Bear Stearns would not fail. It allowed JPMorgan Chase to step forward in that circumstance and to back up Bear Stearns.

At the time, Bear Stearns, an investment house, was leveraged dramatically, which means that for virtually every dollar of assets they had, they had $30 in debt. So there was a fear that if they failed, the stock market and the American economy would suffer.

I give this by way of background because this all occurred while we were out of session. When we returned, the Democratic leadership said: We have to get into this housing issue from a much more local and a much more personal level. If we are going to stand as a Nation to back up investment banks, if we are going to put the full faith and credit of America to the tune of $30 billion and more behind major institutions so they do not face the pain and dislocation that might come from their bad decisions, the obvious question is: What are we going to do for 2 million Americans who are about to lose their homes?

If America is going to ride to the rescue of investment banks on Wall Street, will it at least provide some shelter, some rescue to those who are about to lose their homes on Main Street? I think it
should because it is not just a matter of those poor, unfortunate people facing foreclosure. A mortgage foreclosure is not an isolated, single-family event. It is not just a matter of a family losing their home. That lost home foreclosed upon, sold in your neighborhood, brings down the value of your home.

So 2 million Americans facing foreclosures has a ripple effect. It means 44 million homeowners who are making their mortgage payments every single month will see the value of their homes decline. As I said on the floor yesterday, what is the value of my home in Springfield, IL? If I ask an appraiser, they will say: I will look around your neighborhood; let's see what similar houses are selling for. If the comparable values are going down because there is a foreclosure, a distress sale involved, the value of my home has diminished. That will happen to 44 million homeowners across America because of 2 million mortgage foreclosures. So this has a negative impact on a lot of innocent people and innocent families.

It is not a matter of crossing our arms and saying: Well, those folks made a bad decision; they are going to lose their homes, and isn't it a darn shame; maybe they will be more careful next time. It has an impact on the community, neighbors, and neighborhoods, and it has an impact on consumer confidence. Over 70 percent of Americans today say they will not buy a home, not because they cannot find financing, but because they don't think it is a good investment. They don't want to stretch themselves, as many of us have in our lives to get into a home, for fear that investment of $500,000 today may be worth only $450,000 a year from now.

As a result, our housing industry is flat on its back. It is not just developers. It is not just realtors. It is homebuilders, it is skilled craftsmen, it is the suppliers of carpeting, furniture, and all the items that make a new home. They are all hurting because of the housing industry.
We returned to Washington and said: What can we do to stimulate the housing industry that will be positive? And we came up with a package to present.

First, we provide counselors who are available to those facing foreclosure to tell them what their options might be, to find a way out of this situation.

Second, we found tax provisions to help these homebuilders who are facing hard times get through it.

Third, we want to change the way people buy homes in America so there is more disclosure and transparency.

I had been a lawyer for a number of years before I came to Congress. I used to sit through these real estate closings. I would watch as the bank would bring out that stack of papers, plop them on the table in front of the new homeowners and say: Start signing. We will turn the pages, you sign. They would stop once in a while and say to the lawyers: What is this? Just another Federal form, a disclosure form; it is Form 237. At the end of the day, few, if any, homeowners knew what they were signing.

Jack Reed of Rhode Island, my colleague, has a simple provision that we would have a disclosure statement on the top of that stack written in English so people could understand what is the interest rate; how much am I borrowing; what will the monthly payment be; can this interest rate go up; can my monthly payment go up; can I prepay without a penalty? Some basics. I hope we adopt that proposal.

There is another provision that I think is critically important and has become very controversial. I don't understand why it is controversial. I cannot understand why, if someone facing bankruptcy wants to go into court under what we call Chapter 13 and take a look at all their debts and all their income and restructure their debt so they can pay back in a reasonable way, I do not understand why you cannot put your mortgage on your home in that court proceeding for modification. You cannot now. You are prohibited by law, under Chapter 13, from the court modifying the terms of the mortgage on your home. But the court can rewrite the terms of a mortgage on your vacation condo. The court can rewrite the terms of your mortgage on your farm. The court can rewrite the terms of your mortgage on a ranch. The court can rewrite the security instrument you used to buy that boat that is out in the harbor.

All of those things can be modified, but not your home. I have asked why. Why in God's name would you prohibit the modification of a mortgage on a home? There is no explanation. And so the provision I put in the bill said that the court would have that authority. They wouldn't be required to, but they would have that authority.

Now, what is the protection here? The lenders want to know if they will be protected. Will they end up with a mortgage being rewritten in terms they do not like? So here is what we put in as protection:

First, you have to qualify to go to bankruptcy court. It isn't easy. We rewrote the rules for that a few years ago, and I don't change them at all. In order to get into court, it is a question of what your income is, what your debts are, and whether you have a chance of working it out. That is step No. 1.

Step No. 2, the real estate we are talking about has to be your home and primary residence. I am not interested in helping real estate speculators. Frankly, they may have some advocates here, but I am not one of them. I want to be sure we are dealing with ome ownership.

Third, it only applies to mortgages which are in existence at the time this bill is enacted into law. So it doesn't project into the future, it is a specific group right now.

Fourth, this court--this bankruptcy court--cannot lower the principal on your mortgage in modifying it lower than the current fair market value of the home. There is a protection for the lender. You know that the principal can't be pushed down below fair market value.

Let me add as a footnote that many of these lenders facing foreclosure would be darned lucky to get fair market value on the property. If you have ever seen how these homes in foreclosure are sold, if they are sold, it takes a long time and sometimes results in an auction. We are finding in my State of Illinois that people are not even bidding for fair market value. So fair market value is the low-end protection of the lender.

Next, the interest rate the bankruptcy court can put on the modification cannot be lower than the prime rate on interest plus a premium for risk.

Next, the mortgage itself can't be for a term longer than 30 years.

Next, if in the 5 years after the modification in court the value of the home appreciates or goes up, that increase in value goes to the lender--not to the home owner, to the lender.

How many more protections can we build into this? We have narrowed the people who would qualify, and we have tried to do it in a way that is sensible and protects lenders in the process. So who would oppose a bill that is that narrow in changing the Bankruptcy Code? I will tell you: The mortgage bankers oppose it. The same people who brought us the subprime mortgage crisis are now telling the Members of the Senate: We find this unacceptable; we don't want the bankruptcy court to have this new authority. And what is their argument? The sanctity of the contract. Sanctity. When I grew up, sanctity connoted holiness, a sacred quality. Have you taken a look at some of these subprime mortgages, the ones we are talking about? I have. I have sat down with some of the borrowers in Illinois to see what they went through and what they ended up signing up for. Time and again, these were elderly people, the ones I have met, who ended up signing up for mortgages which made no sense at all--misled, deceived into signing on to a mortgage they could not sustain personally.

The elderly lady who had retired in Chicago saw a number on a television ad, called the number, and in 24 hours there is a fellow at the door saying: You bet, we are going to consolidate your debt. This poor lady goes into a closing--she had limited education, she had retired, and she was trying to save her home--she signed all the papers, and in a matter of a year the monthly payment doubled on her home. Here she is living on Social Security and about to lose her home. The sanctity of the contract. The holiness of the contract. The sacred document the mortgage bankers want us to honor, bow to. Obeisance.

Another case. This poor lady, her husband had a serious illness. He could no longer climb the stairs in their home to get upstairs to the bedroom. He was sleeping on the couch in the living room. His wife was beside herself. They were both retired. She sees a nice little one-story bungalow, a smaller home but one story, with the bedroom on the first floor for her husband. She goes to buy it, and a so-called business adviser says to her: Oh, this is your chance to consolidate all your debt in this new mortgage. Do you know what this charlatan did? He took a zero-percent loan this lady had from the city of Peoria to put insulation in her home and consolidated it into the new mortgage, so she is now paying interest on the zero-percent loan. The sanctity of the contract. The holiness of the contract. This sacred document.

The mortgage bankers say we can't touch these things. My goodness, they have to be protected. Where were these mortgage bankers 3 years ago when we rewrote the Bankruptcy Code, when we said all existing contracts in America that are taken into the bankruptcy court will be treated differently? I didn't hear one word about the sanctity of the contract. No. Why? Because the changes in the Bankruptcy Code were to their advantage. So now, on the chance that they may have to keep a family in a home facing foreclosure, they are opposing it, opposing this change.

What a real test of the Senate this will be if we end up letting the mortgage bankers--the people who brought us this subprime mortgage mess--dictate to the Senate about changing the Bankruptcy Code. Shame on us. Why in the world, if we can stand up for saving an investment bank on Wall Street, can we not stand up to save the homes of millions of people who are about to lose them across America? A lot of them will never qualify for this assistance in this bill. I know it. But for some, a limited group, it is the only way they can keep their homes. That is what this debate is all about.

I read in the paper this morning that many of my colleagues on the other side of the aisle said this is a poison pill; changing the Bankruptcy Code, invading the sanctity of these contracts is a poison pill; we can't consider it. I don't want to be unreasonable about this. I want an up-or-down vote. I want people on the record. I want Senators to stand up and say whether they believe families facing this kind of foreclosure, with communities facing the impact of these foreclosures, will have a fighting chance.

This isn't just my theory, incidentally, on what we need to do. Recently, Newsweek magazine, in its March 31 issue, asked a lot of prominent people in different walks of life what we should do about the economy and particularly the housing crisis. I wish to quote a few for the record.
First, Bob Rubin, chief of the executive committee of Citigroup and former Treasury Secretary, maybe one of the most successful Treasury Secretaries in the history of this Nation. This is what Bob Rubin said:

We should consider higher capital requirements for banks and investment banks, plus higher margin requirements for other investors. Putting up more of their own money would make people focus on risk.

That is a balanced and sensible statement. What he is saying is when we get into this whole question about the future of our economy, let's understand that there is risk on both sides and let's demand responsibility on both sides.

Carly Fiorina. Now, she is an adviser of Senator McCain's campaign, chairperson of the Republican Victory '08 committee, and former CEO of Hewlett-Packard. Listen to what she says:

I think the mortgage companies and the banks should step to the plate and say, ``We have put products out there that have harmed our customers, either because we didn't explain them well or because we pushed them into homes or mortgages that they couldn't afford.'' And those lenders need to sit down with their creditworthy but cash-strapped customers and say, ``How do we help you?''

She is the adviser to Senator McCain's campaign. She is a person with a background in business. Her suggestion is consistent with my change in the Bankruptcy Code. It is exactly what I am saying.

Some of the others. Gene Sperling, an adviser to Senator Clinton's campaign:

How can you have a housing-led recession and have no housing-based remedies?

He gets to the heart of it. The housing-led recession was the catalyst for our economic problems. Ignore it, and I am afraid our economy won't get well very soon.

Joseph Stiglitz, university professor from Columbia, former chief economist of the World Bank, and economic adviser to Bill Clinton. Here is what he says:

There needs to be an immediate write-down of mortgages--perhaps encouraged through a homeowners' Chapter 11, which would allow them to discharge a part of their debt and still stay in their homes.

That is exactly what this amendment does.

He goes on:

Of course, there is something peculiar about what has been going on. While the administration has been vetoing any suggestion of a bailout for poor homeowners who have been taken advantage of by predatory lenders, there has been a bailout for investment banks. The Fed has lent money to facilitate JPMorgan's takeover of Bear Stearns, and has evidently underwritten the risk. It has accepted risky mortgages as collateral--again putting taxpayers' money at risk. These bailouts for those responsible for the mess have been done in a totally nontransparent way. We really don't know much about the values assigned to the collateral and what the risks are. It seems fairer to help poorer American households, rather than putting taxpayers' money at risk without even charging appropriate insurance premiums for bearing this risk.

Mr. Stiglitz has hit the nail on the head. We are ready, with few questions asked, to put $30 billion in taxpayers' money behind a failing investment bank, but when I come to the floor and suggest we ought to try to stand behind a few homeowners across America who stand to lose their homes, oh no, the mortgage bankers won't hear of it; some of these people may not be worthy borrowers in the future. Was Bear Stearns a worthy borrower? I don't even know if the question was asked, and neither does Mr. Stiglitz.

Robert Shiller, Yale professor of economics and founder of Macromarkets LLC. Among the things he says, he quotes a woman I respect very much, Elizabeth Warren, a Harvard law professor, who has proposed that the Government create a Financial Product Safety Commission which would work like the Consumer Product Safety Commission but would monitor lending and financial practices.

How in the world can this Senate stop and say we give tacit approval to the decisions of the Federal Reserve Board and the Treasury Department to put the credit of the United States behind investment banks that we literally don't know their circumstances and then turn around and say we would not let a bankruptcy court even consider changing the terms of a mortgage for someone facing foreclosure? If it is a vacation condo, fine; if it is a farm, fine; if it is a ranch, fine; if it is a big boat, fine, but not your home. You have to lose your home. That is what the law says today. Is that reasonable? Is that what we are all about? Is that what the Senate is all about? Are we here to follow the agenda of the Mortgage Bankers Association that created this mess, or are we here to serve the needs of families across this country struggling to keep a roof over their heads? I hope that answer will be obvious to my colleagues, and I hope that when we get this bipartisan bill that is being worked on very soon that it includes this provision so that we can have an up-or-down vote.

This provision is limited. It will not impact future borrowers in any way. The Georgetown Law study said it will have little or no impact on interest rates to come. I think it is fair for us to consider it. It is supported by a substantial group: the AARP, Leadership Conference on Civil Rights, the NAACP, the National Council on La Raza, Consumer Federation of America, Center for Responsible Lending, SEIU, AFL-CIO, and many others. It has the diverse support of Jack Kemp, former conservative Republican Congressman and candidate for Vice President, and Larry Summers, who was Secretary of the Treasury in the Clinton administration and who wrote op-eds in support. It has the support of the Credit Union National Association and the National Association of Federal Credit Unions.

Who opposes it? The big banks that created this mess in the first place. I am sorry, they have had their day. They have had their chance. Most of them have made plenty of money, and their CEOs are going to escape unscathed from this terrible economy.

But for the rest of America that is paying the price for their bad lending practices, all I am asking is a chance, a chance that in court the bankruptcy judge will allow these people to stay in their homes.

I yield the floor.