Farm, Nutrition, and Bioenergy Act of 2007

Floor Speech

FARM, NUTRITION, AND BIOENERGY ACT OF 2007 -- (Senate - November 15, 2007)

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Mr. SCHUMER. Mr. President, I rise today to discuss the subprime lending crisis and the plan we are executing to address the foreclosure wave that threatens home ownership and our broader economy. Rampant predatory lending practices across this Nation have left millions of American homeowners stuck with unaffordable and unfair subprime loans. As a result, 2 million families now face the prospect of foreclosure and the loss of their homes over the next 2 years unless we take action. The number is going to get worse because the loans that were made in 2006 and this year, 2007, usually do not reset until 2008 and 2009. Because so many people who accepted these loans--took these loans--were taken advantage of, the interest rate will skyrocket for them. Many of them will not be able to afford it.

Foreclosures entail not only direct costs to the lenders and borrowers but also high spillover costs that are felt by neighboring homeowners, communities, and local governments in the form of lower home values, lost property tax revenue, and increased maintenance costs. A recent report by the majority staff of the Joint Economic Committee estimated that each foreclosure can cost $227,000 in direct and indirect costs. That is astounding. The homes on a street or in a neighborhood that has had foreclosures often go down in value. Even if you are perfectly safe, even if you have already paid your mortgage and have no intention of taking out another one, you are at risk because of this foreclosure crisis, in terms of the value of your home.

The numbers mean that if the housing market slump continues through the next 2 years, as many economists estimate, approximately $103 billion in housing wealth will be destroyed as these homes are foreclosed on; $103 billion in lost wealth at a time when our families can least afford it.

In addition, States and local governments will lose nearly $1 billion in property tax revenue over the next 2 years as a result of the destruction of housing wealth caused by subprime foreclosures. That is $1 billion less funding for public schools and public safety, and that is the direct property tax loss. We are not talking about the other losses States and local governments will see as a result of the broader economic impact of the crisis.

We are not talking about the financial burden that cities and towns all over the Nation will face to maintain vacant properties and to prevent crime near abandoned homes. We are also not talking about cost to the larger economy. When home values go down because of this crisis, consumers spend less. Consumer spending has been the engine of this economy. It accounts for about 70 percent of our GDP. Statistics show when home values go down, consumers spend less. So this is ricocheting from one end of the economy to the other. Again, even if you live in your home and paid off your mortgage, you will be affected by this unless we act.

The frustrating thing is we know what to do here. We cannot make this crisis go away; there is no magic wand. It took years of neglect, years of ideological aversion to even commonsense regulation of the now-unregulated mortgage brokers. But the frustrating thing--frustrating for this Member who has been talking about this for a long time--is we know what to do. This administration, when it comes to the subprime crisis, has remained like an ostrich with its head in the sand, not paying attention. Why? Why don't they see what everyone else sees?

The reason is quite simple. We have ideologues who run this administration. Their view is Government should never be involved. Let the homeowner pay the price. Let the economy pay the price. Because to get the Government involved is bad.

They can't prove that; that is their ideology. If there were ever a time when we needed some thoughtful, careful, moderate but directed Government intervention--not to bail out anybody; those people will pay the price, you read it in the financial pages of the newspapers right now--but to help our Nation out of this crisis at a time when other things such as high oil prices are hitting, makes eminent sense. The time to act is now, while we still have a chance to save these homes and strengthen our floundering housing market.

I am proud to say today that my colleagues, we in the Senate, will have an opportunity to act and take action on two measures that are designed to use the tools of the Federal Government to assist in helping the 2 million subprime borrowers facing foreclosures with alternatives for loan workouts, refinancings, and modifications. I hope our colleagues on the other side of the aisle will agree with us that these actions are urgently necessary. To wait even 3 or 4 months will have this crisis grow in problems for those homeowners whose mortgages go up, for those financial institutions that have the mortgages but, to a far greater extent, to our economy--neighbors affected and consumer spending.

I hope my colleagues on the other side of the aisle will join us in helping take the urgent action that is needed now--not next month, not in February but now.

First, we will take action to pass the FHA modernization bill. This legislation makes several important changes to FHA, including adjustments to its downpayment requirements, loan limits, and underwriting standards to give the FHA more flexibility to assist subprime borrowers with safe and sustainable refinancing alternatives before their loans reset to unaffordable rates. With these changes, FHA will be able to rescue tens of thousands of American families from the financial ruin of foreclosure.

The legislation will also make improvements to FHA's counseling and foreclosure prevention programs to ensure that borrowers who have already faced the specter of the loss of their home will not have to go through the ordeal again. The FHA legislation is modest. It has bipartisan support. It has the support of the administration. What are we waiting for?

Second, we are pushing the passage of the PROMISE Act, a bill to temporarily increase the portfolio caps on Fannie Mae and Freddie Mac by their regulator.

This is legislation I have introduced, along with Congressman Frank in the House. The bill will alleviate the predicted wave of foreclosures by giving Freddie and Fannie 10 percent more balance sheet capacity. But it does not just give them the balance sheet capacity and say: Do what you want with it; we hope some will go to help avoid foreclosures through refinancings.

We say 85 percent of that increase must be dedicated to assisting subprime borrowers who are stuck in risky adjustable rate mortgages. The legislation is based on the premise that in troubled market times like these, when private firms are unwilling or incapable of providing the financing necessary to help subprime borrowers, it is appropriate and necessary for the government-sponsored enterprises to step in and provide liquidity. This is why we have GSEs. They are quasi-private, quasi-public. They have a certain and special responsibility when the Nation's economy is at risk. They are not the same as any private company whose job is to make money for its owners or its stockholders. But at the same time, they have the expertise of the private sector and the clout of the private sector to get something done in an efficient and directed way.

We have all heard that GSEs are the only game in town when it comes to secondary market trading, due to profound distrust of credit quality and rampant uncertainty about the rating agencies. We have to use the liquidity GSEs provide to target those subprime borrowers in need of a way to save their homes.

What is frustrating is the administration is opposed to this legislation because they do not like Fannie and Freddie. They say: Let the markets take care of this in their own way. That is a lesson that was widely accepted in the 1890s and to some extent in the 1920s, but this is 2007. We know thoughtful, well-thought-out Government intervention, in a careful way, works and is needed. We also know if we do not have it, the booms and busts of the economy and to individuals will be far greater, and starting with Woodrow Wilson and then with Franklin Roosevelt and with Democratic and Republican Presidents alike since World War II, we have learned that at times Government intervention is called for, particularly when the private sector is unable to act. In this case, the private sector is clearly unable to act.

Over the coming weeks, we also plan to pass $200 million in the Transportation-HUD appropriations bill for housing counseling organizations that specialize in foreclosure prevention. Here is another problem. A homeowner, and many of the homeowners who are in foreclosure or about to go in foreclosure, these are homeowners who could qualify for prime loans, but they were taken advantage of by rapacious mortgage brokers. And now they are stuck. But they are not really stuck, they have a revenue stream.

People I have met, Mr. Ruggiero, the late Mr. Ruggiero, a subway motorman; Ms. Diaz, a clerk at a hospital for 35 years with a pension, they have the income. Mr. Ruggiero of Queens, Ms. Diaz of Staten Island, they have the income to refinance. The trouble is there is no one there to help them do it. They cannot do it on their own.

There are no banks. Banks do not do this stuff in good part anymore. There are nonprofits, able, dedicated, capable, knowledgeable nonprofits that could come right in and fill the lurch.

Now, you, Mr. President, the Senator from Ohio, and the Senator from Pennsylvania, and I were able to persuade Senator Murray who, in her wisdom and always willingness to help, put first $100 million, then $200 million into the appropriations bill for housing counseling organizations that can provide this help.

At a cost of as little as a few hundred dollars per borrower, housing counselors can prevent foreclosure that results in economic loss of $227,000 direct and indirect, on average. This is a highly cost-effective investment. We urge the administration not to veto this emergency funding when the Senate passes it. If it is vetoed, and this crisis gets worse, a portion of the blame, a good portion, will be at the President's doorstep, plain and simple.

I hope the President will not veto it. Most everyone who has looked at this legislation says it is needed. If we can do these three things--FHA reform, lifting the portfolio caps for Fannie and Freddie, and money for housing counseling--we will not end the subprime crisis, it is too deep already. But we can abate it, and we can get our country focused on moving again economically and on to so many other problems that face us.

I yield the floor and suggest the absence of a quorum.

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