Letter to President Bush

Letter

Letter to President Bush

Congressional Leaders Take Action to Address Subprime Mortgage Crisis

Urge President to Appoint Mortgage Czar, Strengthen Foreclosure Prevention Orgs

Congresswoman Carolyn Maloney (D-Manhattan, Queens), House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, Congressman Barney Frank, and Senators Chris Dodd and Charles Schumer wrote to President Bush yesterday, urging him to quickly address our nation's escalating subprime mortgage crisis. In addition, Rep. Maloney today expressed her strong support for H.R. 3648, the Mortgage Forgiveness Debt Relief Act, which the House will vote on this afternoon.

"The subprime mortgage mess threatens to displace more Americans than Hurricane Katrina, but so far the response from the Administration has been slow and small," said Rep. Maloney, Chairwoman of the House Subcommittee on Financial Institutions. "The Democratic Congress is working hard to help struggling homeowners stay in their homes, hold lenders accountable, and stem the broader economic impact of the mortgage meltdown. I hope the President will choose to work with us instead of sitting idly by while millions more hardworking Americans lose the dream of home ownership."

"We believe this situation demands a serious response commensurate with the magnitude of the threats to individual homeowners, communities and the nation's economy," the Congressional leaders wrote in their letter to the President, the full text of which can be found below. The leaders called on the President to appoint a federal mortgage czar to coordinate the government's response to the crisis; to support critical legislation to reform the Federal Housing Administration and enable it to offer more loans to Americans in need; and to support Congressional efforts to increase funding to foreclosure prevention organizations.

The bipartisan Mortgage Forgiveness Debt Relief Act would end the tax on "phantom income" when a lender forgives some part of a family's mortgage in foreclosure. Under current law, the debt forgiven following mortgage foreclosure or renegotiation is considered income for tax purposes, resulting in tax liability for already-struggling individuals and families.

"Foreclosures are a double-edged sword for many families -not only are they losing their homes, but they're getting hit with a huge tax bill as a result," Maloney added. "This legislation would prevent the tax hammer from falling on families who can least afford it."

October 3, 2007

The Honorable George W. Bush
President
1600 Pennsylvania Avenue, N.W.
Washington, DC 20510

Dear Mr. President:

As you know, we are in the midst of a subprime mortgage crisis. Families around the country are suffering from either the reality or prospect of losing their home, which in too many cases will bring financial ruin, depress surrounding property values, and weaken local economies. Already, some previously thriving neighborhoods have become ghost towns plagued by blight and crime.

The severity of the problem is clear. The Mortgage Bankers Association's National Delinquency Survey shows that the foreclosure rate for subprime borrowers has hit historic highs. Foreclosure filings, default notices, and auction sales have more than doubled from a year ago.

One primary cause of this historic disaster is the proliferation of high-cost, extremely risky subprime adjustable-rate mortgages (ARMs), which offer short-term teaser rates that explode upwards after the two- or three-year fixed period. In too many cases lenders and mortgage brokers made these loans without regard to the borrower's ability to repay and without adequately disclosing the terms and risks. These lenders and brokers adopted what Secretary Paulson acknowledged were "bad lending practices" and disproportionately made high-cost subprime loans to African-American and Latino families.

Many observers believe that the subprime problem will only worsen in the coming months. Some estimate that nearly 2 million American families will lose their homes to foreclosure after their subprime ARM resets. The National Consumer Law Center notes that if these foreclosures go unchecked, the coming crisis could eclipse the number of people displaced by Hurricane Katrina.

We believe this situation demands a serious response commensurate with the magnitude of the threats to individual homeowners, communities and the nation's economy. Clearly, policymakers need to be careful about bailing out those who made unwise decisions or encouraging excessive risk taking in the future. However, given the seriousness of the problem, a failure to adopt a sufficiently aggressive response also poses great risks.

We therefore urge you to take a number of immediate, critical steps.

First, we urge you to help us get FHA modernization legislation enacted as soon as possible. The House of Representatives has passed related legislation, and the Senate Committee on Banking, Housing, and Urban Development also has approved a bill. We will do what we can to move legislation through the Senate in a bipartisan fashion to make FHA loans more widely available in order to help both new homeowners and those struggling with abusive mortgages. We also urge you to exercise your existing authority to give the Government-Sponsored Enterprises (GSEs) a temporary, one-year increase in their portfolio limits so these entities can provide liquidity for subprime borrowers.

Second, in order to do the outreach that is necessary to reach the millions of subprime borrowers with resetting mortgages, we urge you to greatly enhance and strengthen non-profit foreclosure prevention counseling organizations. These groups are playing the central role in reaching out to troubled homeowners who have proven to be extremely reluctant to discuss their difficulties with their servicers and need resources to meet the enormous demand. As a first step, Democrats are committed to passing a significant boost in funding targeted to HUD-approved nonprofits specializing in foreclosure prevention, as well as finding ways to provide more resources to these nonprofits. We urge you to support legislation to increase this funding and deliver these critical resources that will help keep families in their homes. We expect, however, that even with enactment of such legislation, more resources likely will be required and we look forward to working with you to make that happen.

Third, we urge you to appoint a senior Administration official with the authority to immediately address the subprime problem by overseeing and coordinating the federal government response. Just as you appointed a single official to oversee the response to hurricanes Katrina and Rita, we believe the subprime crisis is of sufficient magnitude to warrant a comparable appointment. This official should work together with financial institutions, servicers, and regulators to ensure everyone is doing what they can to help borrowers. One important role would be to encourage lenders and servicers to more aggressively and routinely modify ARMs and other unaffordable subprime loans in order to keep more Americans in their homes.

Where modifications are not possible, this individual should encourage the Federal Housing Administration (FHA), lenders and the GSEs to make mortgages available on fair and affordable terms to refinance these homeowners into stable, fixed-rate loans. Some lenders and servicers have made a good faith effort to do so already, but according to a Special Report by Moody's Investors Services, many servicers are not living up to commitments made to Democratic leaders earlier in the year to reach out to subprime borrowers facing resets.

Thank you for your consideration of our concerns. Standing together with the American people, we will protect their dreams and prosperity.

Sincerely,

Harry Reid Nancy Pelosi
Senate Majority Leader Speaker of the House
Senator Chris Dodd Congressman Barney Frank
Senator Charles Schumer Congresswoman Carolyn Maloney

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