Hearing: Joint Economic Committee-"A Local Look at the National Foreclosure Crisis"

JOINT ECONOMIC COMMITTEE HEARING:
"A LOCAL LOOK AT THE NATIONAL
FORECLOSURE CRISIS"

Cleveland Families, Neighborhoods, Economy Under Siege from the
Subprime Mortgage Fallout
Opening Statement
Sen. Charles Schumer
I would like to welcome my fellow Committee Members, Senator Sherrod Brown, our
witnesses and guests here today for this very important hearing on a problem that is
plaguing too many families and communities across the nation—the subprime foreclosure
crisis.
The numbers are staggering and getting worse.
Consider these statistics:
• The Center for Responsible Lending estimates that as many as 2.4 million families
may ultimately lose their homes to the subprime foreclosure crisis, at a cost of $164
billion in home equity.
• In June alone, foreclosure tracker RealtyTrac counted 165,000 new foreclosure
filings, more than double the amount recorded in June 2005.
• From June to October of this year, $100 billion of risky subprime adjustable rate
mortgages are scheduled to reset in a weak housing market, many of which are likely
to default and lead to further foreclosure increases.
• One in five subprime loans originated in 2005 and 2006 will end in a lost home.
These numbers are not the manifestation of a housing market "correction," as the
administration's economists have argued. These facts are not merely the byproduct of a
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period of bad decision making among a select few over-eager borrowers. These shocking
figures are a result of widespread, systemic, irresponsible underwriting practices by too
many unscrupulous brokers and lenders that now are threatening the social fabric and
economic well-being of our nation's neighborhoods and towns.
And worst of all, this subprime foreclosure crisis is just beginning. I know it is hard to
imagine that it could get worse from here, but it will. The wave of foreclosures that we
have seen to date does not include the vast number of risky "exploding" adjustable rate
mortgages that were originated in 2006. Once these loans start resetting this fall and into
next year, we can expect to see hundreds of thousands more families lose their homes.
And when this foreclosure storm subsides, it will have left a net loss of homeownership
in its wake.
I called this hearing today for two main reasons:
First, I fear that the cries for help from the millions of real people trapped in bad
subprime loans today are getting drowned out by headlines of investor woes, collapsing
hedge funds, and lower-than-expected earnings among lenders.
And while every city in America is in this together, I chose to focus on the families and
neighborhoods of Cleveland, like Slavic Village, that are being decimated by subprime
foreclosures. Slavic Village is a harbinger of the crisis that is unfolding in cities across
the nation; and I hope that by investigating the human toll of unscrupulous lending up
close, we can better prepare to prevent more Slavic Villages from emerging in the near
future.
Second, I am afraid that we are not learning the lessons of the present. I fear that this
problem is beginning all over again right under our noses, with predatory lenders preying
on those very families already in danger of losing their homes - this time, with the
promise that they are rescuing them from foreclosure.
We're reading in the headlines that lenders are tightening underwriting guidelines, and
that some have even banned certain types of risky loans. Yet the data examined by the
Center for Responsible Lending show otherwise. At the June hearing I held on the
Housing Subcommittee that I chair, CRL testified that many of the most recent offerings
of mortgage-backed securities still included harmful prepayment penalties and stated
income or low documentation loans, and nearly 80% of the mortgages were still risky
adjustable rate loans!
The witnesses that we have here testifying for us today are at the epicenter of the
subprime lending storm. The testimonies that you will hear tell a story of fraud,
corruption, greed, negligence and heartbreak.
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Our witnesses will also inform us about an important side of this issue that is rarely
discussed - the ways foreclosures impact not only the families that own the homes, but
their neighbors, their communities, and their local governments.
We never hear, for example, that one foreclosure on your city block can bring down your
home's value by 1.5%, even if you have never missed a payment on your own mortgage.
In neighborhoods like Slavic Village outside of Cleveland, where over 1,000 homes are
currently foreclosed and vacant, community leaders like Councilman Tony Brancatelli
and residents like Barbara Anderson—both of whom are here today—are grappling with
lost property values in the area of $60 million. Just think about that. $60 million of
financial security that the families in this one community were relying on has
disappeared.
And lower property values means lower tax revenues for local governments at a time
when the demands on them are already too high. County Treasurers like Jim Rokakis
here with us today now have fewer resources for their schools, their local law
enforcement, and for important public services such as those that can help these imperiled
homeowners.
This is not a problem that is going to go away when the market corrects itself - the
subprime mess is leaving deep scars that threaten economic security nationwide, whether
in urban neighborhoods like those in St. Louis and Baltimore, suburbs like Massapequa
on Long Island, or entire regions like Greater Cleveland.
We cannot afford inaction. To do nothing means that hundreds of thousands more
families will lose their homes and their primary source of economic security. To do
nothing means that millions of other homeowners will see the value of their homes
plunge through no fault of their own. And to do nothing means that we will be
permanently handicapping communities for years to come, which will have widespread
repercussions for our economy.
We don't have time for endless debate about the causes of this crisis. We need to help
families everywhere, including those sitting in this room, who are struggling with
foreclosures today. And we need stronger, common-sense regulations, to prevent a flood
of risky or abusive subprime loans rushing into the vacuum that the current crisis has
created.
To help stem the surge of foreclosures expected in the months ahead, Senator Brown,
Senator Casey and I are fighting for increased resources for nonprofit groups in the
trenches of the foreclosure prevention fight. We have succeeded in getting $100 million
of funding for HUD-approved foreclosure prevention programs in the Senate
Transportation-HUD Appropriations bill, and we will fight to make sure that this
important resource is made available to the many organizations, like NeighborWorks and
ESOP here with us today, that are providing an invaluable service to help struggling
borrowers keep their homes.
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Another goal that Senators Brown, Casey and I share is to create a national regulatory
structure for mortgage brokers and other originators that fall through the cracks of the
complex federal and state regulatory structure.
In April, we introduced a strong bill, The Borrowers Protection Act, to make it harder for
irresponsible brokers and non-bank lenders to sell mortgages that are designed to fail the
homeowner and result in foreclosure.
Our ultimate aim is to strengthen standards for subprime mortgages by regulating
mortgage brokers and all originators under the Truth in Lending Act (TILA) by
establishing on behalf of consumers a fiduciary duty and other standards of care. In
addition, the bill outlines standards for brokers and originators to assess a borrower's
ability to repay a mortgage, requires taxes and insurance to be escrowed on all subprime
loans, and holds lenders accountable for brokers and appraisers.
We look forward to hearing from all of our witnesses today. You are on the front lines of
this battle, and your testimony that you will provide today will help better inform the
Members of this Committee and of Congress, and shape federal action to address this
crisis.
Without further delay, let us get down to business. I welcome all Committee Members
and honorary members here with us today to give their opening statements, starting with
[Ranking Member Rep. Saxton] and Vice Char, Ms. Maloney. Then we will proceed to
the other members before my colleague from the Banking Committee and a leader on this
issue, Senator Brown, offers his opening statement and introduces of our panelists.

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