Press Conference with Senator Charles Schumer and Senator Richard Durban - The Bush Administration's Response to the Mortgage Crisis
Interview
Press Conference with Senator Charles Schumer and Senator Richard Durban - The Bush Administration's Response to the Mortgage Crisis
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SEN. SCHUMER: Okay. Good afternoon, everybody, and Senator Durbin and I are going to react to the president and Secretary Paulson's speech.
And as you all know that today the president announced the White House's subprime relief plan to freeze interest rates for up to five years for borrowers who took out subprime loans, here's what's good about the announcement. The administration is finally dipping its toe in the water. But what it really needs to do is finally jump in the pool. The ideological straitjacket that they've been in -- no government help -- even they had to take that off, because the crisis is so great that simply sitting by and holding these ideological precepts that date from before the New Deal just don't work.
The extent of the subprime mortgage crisis is astounding throughout the country. There's not a single state that hasn't been touched.
We thought that places -- sorry -- people thought that places with fairly robust housing markets, states like my state of New York, would be immune to it. But New York is not immune, and the subprime crisis is now hitting New York like a whirlwind. There were over 20,000 foreclosures this year in New York, and that's only through October. The number has increased significantly since then.
And what makes your blood boil is to know that of the 200,000 New York-area homeowners holding subprime mortgages, it is estimated that 55 percent, more than half, could have been eligible for traditional mortgages but were fleeced by their mortgage broker. That means up to half of all subprime borrowers in the New York area were duped by unscrupulous brokers and lenders, and convinced to take out a less affordable loan that they really didn't need.
Here's what's most troubling. The president's relief plan, suggested today, would only be available to a small percentage of the people who need it. So while they've taken off their ideological straitjacket, they are not ready to roll up their sleeves and do what is needed.
The president's plan would be available, for instance, to people who are current on their loan payments. That excludes one-fifth of all subprime borrowers and a much higher percentage of those likely to go into foreclosure right off the top.
Also ineligible for the president's plan are people whose so- called teaser or introductory rates expire before January 1st, 2008. So if in the last six months you've been a victim of this crisis, you're out.
They're doing the bare minimum needed to get away with saying they're -- avoiding saying they're doing nothing.
It excludes victims of mortgage fraud. It excludes those who have had their home values depreciate before the value of their mortgages. As we all know, both rampant fraud and in the mortgage process and the housing slump have made these two groups much larger than before.
I've met with a lot of the people who are in this predicament. And some of them will be helped by the president's plan, but most won't. (Name inaudible) -- I visited her home on Staten Island. She's a hospital clerk. She has a decent income but she lost her home through foreclosure because of a no-doc loan where she was defrauded.
And so too many people are excluded. While we all certainly hope this will be a shot in the arm for the housing slump, it's hardly a panacea. And the bottom line is, this is the most serious economic crisis we've had in a long while. And the administration is taking little steps, little baby steps, to try and solve it, when much larger action is needed.
Furthermore the other things that the president and the secretary called for are not being implemented by people in their own parties. They want FHA reform, but somebody in the White House forgot to send the memo over to the Republicans in the Senate. Because just this afternoon, they once again blocked FHA reform.
The president says we need money for loan counselors. Well, we put $200 million in the new budget, additional money for loan counselors, and the president says he'll veto it. And they say they want Fannie and Freddie to provide money for mortgages, and that's correct. But then they won't allow it to happen with legislation that Congressman Frank and I introduced, because they say you have to reform Fannie and Freddie before this happens.
That's backwards. We have a crisis that's immediate, and we ought to get them into the markets. Reform is important, but it's not the immediate problem before us. And when they say you can't get Fannie and Freddie involved until you do reform, it's delaying their involvement by a minimum of six months at a time when we need them now. So there's a lot more that has to be done. The administration has to do more than they have.
Bottom line: this was a good first step, and the best news of all is that the blinders that said we can't let government be involved have been taken off for the first time. But it's hardly a complete package, and it's far, far short of what needs to be done to both deal with the subprime mortgage crisis and to assure the markets that real, strong, tough medicine is available to correct this situation, which is getting worse every day.
Senator Durbin?
SEN. DURBIN: My thanks to Senator Schumer.
It's the old story in Washington: homeowners facing foreclosure, drowning 20 feet off shore, and the administration just threw out a 10-foot rope. It's not going to save enough. One in eight may qualify for what was announced today as the administration plan, but it's still very arbitrary. The lenders have to decide whether they're going to allow those homeowners to be given a chance, and many of them are not going to qualify.
Yesterday, with the hearing that I had in Judiciary Committee, Nettie McGee came to see us. Nettie's 73 years old, entered into a refinancing of her home last year, now was told this October that she's going to face a reset in December. Well, under the plan the administration just announced, Nettie McGee, a 73-year old retiree, doesn't qualify, because the reset takes place this year. Under their plan, it has to take place after January 1st of next year. This plan really doesn't take into consideration the hardship that this is creating for so many people.
I agree with Senator Schumer; I'm glad that Secretary Paulson and the president have at least acknowledged this crisis. But I'm afraid that this government is afraid of government.
What they're asking the lenders to do is to play nice, to be sensitive to the needs of a lot of people who are struggling to keep their homes, but at some point they have to step in and show some real leadership when it comes to this government.
First, they need to start with their own political party. The president wants us to have more reform and more funds at the Federal Housing Administration? The Senate Republicans block us when we try to bring this to the floor. The president said we need housing counselors to help these poor people. The Senate Republicans blocked that when we tried to bring it to the floor. Time and again the Senate Republicans have stood in the way of even the most modest efforts to deal with this crisis.
This is not just a mortgage crisis, it's an economic crisis. It's gone far beyond your neighbor's problem. It's everybody's problem. It's a problem that's going to affect the values of homes of people who are making their mortgage payment. It's a problem that's going to affect communities. It's a problem that's going to affect a lot of government when the revenues that they're receiving from property taxes aren't enough to carry their burdens in the coming years.
We need to do more. Let me suggest the first call the president should make is to Senator Mitch McConnell before he calls any banker and ask him to please cooperate. Please get the Senate Republican caucus to read the president's press releases and to follow the president's lead and suggest that we make the significant changes that might save the homes of Minnie Mcgee (sp) and a lot more desiring people.
I'm happy to answer your questions.
SEN. SCHUMER: Yeah, and let me just say one other thing, which I didn't -- the nub of the president's solution, which is to get the mortgage servicers to change the terms of the loan and have a five- year moratorium on increased rates, also has a looming question mark, which is: Will lawsuits block it from happening? If you have one lender out of 30 who have pieces of the mortgage who says, "I don't want to go along with this. I'm going to court to sue," it might not happen.
The much quicker way to do this is money or the nonprofits for the mortgage counselors to help people refinance and money from Fannie and Freddie to help refinance these mortgages. That's what most experts would agree is needed. But because the administration is so averse to getting the, quote, "government" involved, they build a gyro gear-loose little plan that is not going to have the immediate, direct and large effect that what Senator Durbin and I are talking about would.
I'm ready for your questions.
Yes?
Q (Off mike) -- Secretary Paulson a lot, and now, I mean -- have you brought this up --
SEN. SCHUMER: Oh yeah.
Q -- the fact that all these things are being blocked, and what's his reaction?
SEN. SCHUMER: Yeah, I brought it up with him as recently as yesterday. I spoke with him twice yesterday about this, and he says we're going to work on it, we're going to work on it, but we don't see much result; because the FHA is the mildest of the five things that need to be done, and it was blocked here today.
And my guess is, if the president was really weighing in, that wouldn't have happened.
Q What are you looking to -- are -- you still want the GSE -- your Frank-Schumer bill on the government --
SEN. SCHUMER: I talked to Senator Reid about it this morning, and it would be my desire to put it on there. Obviously, again, if we're going to get opposition, we can't stop the omnibus because of it. But again, the president could step up to the plate and say to the Republicans in the Senate, "Let this happen." And the -- that's a possibility.
Q Would that also include loans limits as well, or --
SEN. SCHUMER: The loan limit -- Secretary Paulson, actually -- this is another bill that Senator -- I mean, Congressman Frank and I have, which would raise the loan limits up to 650(,000 dollars), you know, about 650,000 (dollars). And Paulson said he's for that, and the administration's for it. My guess is, if we brought it to the floor for UC, which is one of the things I'm going to do in the next few days, that it's going to be blocked, just like FHA, which is much milder. If they're going to block FHA, they'd certainly block loan limits.
So what we need here is, we need some real elbow grease. It's a nice press conference, saying, "We care." Well, actions speak louder than words.
SEN. DURBIN: Thank you.
Q Senator Clinton -- sorry. Senator Clinton -- (off mike) -- yesterday about Wall Street needing to step up to the plate. I wanted to get your sense of whether you agree with that. And then the follow-up to that is whether you also agree with your colleague Senator Dodd that Goldman Sachs and in particular Secretary Paulson should be investigated -- (off mike) -- his role at Goldman Sachs.
SEN. SCHUMER: Yeah, well, I think it's premature to call for an investigation. But I do think that we do want the loan servicers and the lenders to try and step up to the plate. The problem is, you have the agreement of 29 of them and you don't have the 30th, nothing happens. That's the problem here. It's not one person holding the mortgage.
And so I've talked to Paulson about this. And to his credit, he admits this a serious problem.
And what they've tried to do is have a best practices put out that would immunize the mortgage servicers from the lawsuits. But how long will the courts take to make that determination, and will they put a TRO in the way? Those are the $64,000 questions here that nobody knows the answer to. And if they do, then this whole thing takes six months to a year to get going, and that's a big mistake.
Q About a decade ago Congress repealed the Glass-Steagall Act, which sort of put Wall Street into the secondary mortgage market -- (off mike).
SEN. SCHUMER: No, Wall Street -- Glass-Steagall wouldn't have stopped Wall Street from going into the secondary market.
Q But are you going to look at how this was transformed in your committee?
SEN. SCHUMER: Yeah, I think we are going to look at the whole thing and see that went wrong. To me, my particular bugaboo here are the credit agencies. The investors who bought this can't be expected to know all the nooks and crannies.
They rely on the -- we've relied on the credit agencies to do it, and the credit agencies have an inherent conflict of interest. They're paid by the issuer and they're paid after they make the determination what the rating is.
So they obviously have a built-in incentive to be optimistic. I guess that would put it kindly, and maybe we ought to go back. In the '70s, the credit rating agencies were paid for by the issuer. I mean by the borrower, not by the issuer, the buyer of the stuff.
Q But you guys just passed a credit rating agency bill last year. I mean, do you think you need -- (off mike) -- in the aftermath --
SEN. SCHUMER: It's something that should certainly be looked at. The problem in the credit agencies is a lot deeper. Our legislation just dealt with certain competitive practices, but the problem is a lot deeper. It's an inherent conflict of interest. The person who wants the rating pays for it.
Now, the borrowers are now much more skeptical. The people who buy the product are much more skeptical of the triple-A rating and by the way, that's another huge question for the economy. Which is, if the credit rating agencies so missed the boat in mortgages, what else did they miss the boat on: auto loans, credit card loans, different kinds of commercial endeavors, commercial real estate? So this could spread.
Thanks, everybody.
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