Requiring a Report Setting Forth the Global Strategy of the United States to Combat and Defeat Al Queda and Its Affiliates -- Motion to Proceed

Floor Speech

REQUIRING A REPORT SETTING FORTH THE GLOBAL STRATEGY OF THE UNITED STATES TO COMBAT AND DEFEAT AL QAEDA AND ITS AFFILIATES--MOTION TO PROCEED -- (Senate - February 28, 2008)

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Mr. DURBIN. Mr. President, later this afternoon the Senate will have an opportunity to vote on a procedural motion, a cloture motion, to end debate and to move to another issue. The issue we want to move to is the housing stimulus package. We are expecting resistance from the Republican side of the aisle. They don't want to debate the housing issue facing America. That is a serious mistake. I hope enough Republican Senators will step forward and join us to initiate this debate about housing in America. Our economy is in trouble. It is struggling. The first indication we had was in the housing market. We know we passed a stimulus bill recently, a bipartisan bill which the President signed. It is going to be a good bill, I hope, to help families across my State and across the Nation. But we all know intuitively that until the housing market gets well, our economy is not going to get well.

The housing market is very sick today. Last Friday, Moody's Economy.com reported that 1 out of 10 homeowners in America are holding mortgages on homes where their debt is larger than the value of their home; 8.8 million homes in America are so-called underwater, as they say. That is the greatest percentage of homes in such a state since the Great Depression. Goldman Sachs estimates that by the end of 2008, as many as 15 million homes will be in that situation, almost double the number we know today. The Center for Responsible Lending estimates 2 and a quarter million homes may be lost to foreclosure in the next couple of years. Fitch Ratings has recently estimated that for subprime loans originated in the years 2006 and 2007, 50 percent of them could end up in foreclosure.

But the crisis goes beyond the families who have their mortgages foreclosed. Forty million American families who are currently making their mortgage payments, through no fault of their own, will see the value of their homes go down because of this housing crisis. Why? Because the value of your home is based on comparable sales in the neighborhood. When that neighbor 2 blocks over has a distress sale, an auction, because his house is in foreclosure and the house sells for less than fair market value, that is a calculation that affects the value of your home. Make your mortgage payments and still lose value in your home; that is what is happening.

So when we hear from some people that this is a narrow problem for a narrow group of people, trust me, it goes, unfortunately, way beyond. A third of all residences in America will lose value because 2.2 million homes will face foreclosure at rates that we have not seen since the Great Depression.

When the President was asked today in his press conference what should we do about this, he said: Let's sit tight. We just passed one stimulus bill. The checks are going to go out in May or June. Let's wait and see what happens.

It is that kind of bold, innovative attitude that led Herbert Hoover to do nothing in the Great Depression and for the situation to go from bad to worse.

This housing crisis is our wake-up call. If we do not rally on a bipartisan basis and do something about it, the economy is going to get worse. I do not say that with any sense of pride--just disappointment. My home is going to go down in value, too, in Springfield, IL. That is a fact. Though my wife and I make our mortgage payments, we are facing that reality.

So we have to do something about this. In Illinois, the fourth worst hit State in the country, it is estimated that nearly 45,000 homes will be lost to foreclosure and over 2.5 million neighboring homes will see a loss in value. Our State will see $15 billion lost in housing values, and as property values go down, property tax receipts go down. That means that your city, your county, trying to raise money for schools, for police protection, is going to have less money coming in.

We should have seen this coming. I was on this floor sitting back there in the corner as a relatively new Member in 2001 when we considered the bankruptcy bill. I wanted to put in a provision, and here is what it said: If you are a lending institution and you are guilty of predatory practices--those are illegal practices, where you mislead people into debt--you will be limited, if not precluded, from foreclosing on that home because you do not have clean hands because you were guilty of predatory lending. You cannot take over the home of someone if you tricked them out of their money and tricked them out of their home. I lost. I lost by one vote in the year 2001.

Do you know what I said when I offered this amendment in 2005? And I thought this was a stunning statistic. I said: ``1 in 12 subprime predatory loans ends in foreclosure. And I said that is ``an astonishing statistic''--1 out of 12 subprime loans in 2005 ended up in foreclosure. Do you know what the number is today? One out of two. This is because we did not pass the kinds of laws we needed to pass to keep an eye on this industry, these mortgage bankers who are ripping people off.

Have you ever heard these stories in Colorado, in Alaska? Have you talked to these people? A lot of folks would have you believe they are people who are just smoothies, who think: We are going to make a little investment here, we are going to make this payment, and pretty soon we will have a big home, and we will not have to pay for it. Boy, those aren't the stories I am hearing. The stories I am hearing are of people, by and large elderly people, who are dragged into real estate closings, facing a stack of papers 10 times larger than this. The agent turns the pages and say: Keep signing. We will tell you when it is over. And they walk out the door with the understanding that everything is fine. Then they look at the fine print when things go bad. And what happens? There is a reset on their mortgage. The interest rate just went sky high. The monthly payment just went beyond their means.

That is the reality. There are provisions in some of those subprime mortgages where the interest rate can never go down--never--only go up.

I met a poor lady from Peoria, IL, 2 weeks ago, Carol Thomas, who is 70 years old, a widow, whose husband just died. She bought a single-level home because her husband was so sick he could not climb the stairs anymore in their old home. One of these business advisers came to her and said: Mrs. Thomas, what you ought to do is consolidate your debt. You hear that on TV all the time: Consolidate your debt. This poor lady did not know. She said: Fine. They took all her debts and consolidated them into her new home loan. They took a debt she had--a loan she received from her city for siding on her home that was a zero-percent interest loan--and threw it into the consolidation. She was now paying interest on the zero-percent loan. When did she realize it? When the mortgage reset and her monthly payment went from $500 to $900 a month. Four hundred dollars a month may not be a crisis for a Senator or a Congressman; it was a crisis for Carol Thomas. She was about to lose her home, getting the runaround day after day from the mortgage company: Well, don't make the payment this month. Now you are in default. It is a shame you are in default. Maybe you should have made the payment.

She was beside herself. Well, we got it worked out with a couple phone calls. They finally renegotiated the mortgage. But the problem Mrs. Thomas faced is shared by many others. Do you think Carol Thomas in Peoria, IL, thought she was pulling something over on people? Not at all. She thought she was taking good advice. Unfortunately, the advice was bad.

We met a family here. Senator Sherrod Brown from Ohio and I had a press conference the other day with the Glicken family from Cleveland, OH. Nice folks. John Glicken came in and had his Cleveland Indians jacket on and told his story. The same thing happened to him.

Well, he decided he would try to take advantage of the Bush administration's plan for saving homes, to save his home. So they said: If you want to make an application for a loan modification under one of these new programs, it will cost you $425 to apply. John did not want to lose his home. He paid the $425. He was turned down. So not only is he facing foreclosure, he is out $425 for nothing.

In Ohio, the Center for Responsible Lending conservatively estimates that 85,000 families are at risk of losing their homes and almost 1.4 million families could lose nearly $3 billion in value in their homes. State after State--Kentucky, Pennsylvania, Iowa, Indiana, Maine, North Carolina--the list goes on and on. In every one of these States, the same stories.

Well, the question is, what are we going to do about it? There is one thing we can do that can make a big difference. We need to change the bankruptcy law. Listen to this: If you are facing bankruptcy but you are not completely out in the cold--you have an income coming in--you go into something called chapter 13. You walk into bankruptcy court, and you say to the judge: I am in trouble. I cannot pay my debts. This is my income. These are my assets. Here are my debts. Is there a possibility we can work out and renegotiate these so I do not lose everything? Chapter 13.

So when you go in there, the judge takes a look at it and says: Well, let's bring in your creditors and sit down and see if we can work out some kind of payment arrangement so you don't lose everything and they don't lose everything through foreclosure.

One of the things they can do is take a look at your mortgages. Do you have a mortgage on a vacation home, a vacation condo, for example? Well, the bankruptcy court can take a look at that mortgage, bring in the creditor, modify the terms of the mortgage--change the length of the mortgage, for example--even change the amount paid on the mortgage, even change the interest rate on the mortgage. You can do that. You own a farm? Let's take the mortgage on the farm. The bankruptcy court can renegotiate the mortgage on the farm. The same thing with a ranch. But, wait a minute, what about your home? The law prohibits the bankruptcy court from modifying the terms of the mortgage on your primary home. All they can do is foreclose. That is it. Does that make any sense? A home is something that virtually everybody brings into that court. It is the most important asset we ever own, and the mortgage cannot be modified in the bankruptcy court for your home.

This provision of law in our housing stimulus package changes that. But we narrow it very strictly. It only applies if you live in the home. This puts the speculators out of business. We do not want the speculators to benefit from this.

Secondly, you have to qualify to get into bankruptcy court. You don't have any income, can't make it in there? You are not going to get into that court. They do a means test now to get you into bankruptcy court.

Third, it has to not only be an existing mortgage--not prospective, not for those 2 years from now, 3 years from now, but right now--but it has to be one of these subprime mortgages.

Then, what can the court do? The court cannot lower this new modified mortgage below the fair market value of the home. This protects the lender. Lenders are very lucky to get a fair market value out of a home that is sold at auction. But they are protected here. And judges can only reduce interest rates to the prime rate plus a reasonable premium for risk.

All of these things taken into consideration give the court the opportunity to modify the mortgage on your home so you can stay there. It is treated just like a vacation home, just like a farm, just like a ranch.

How many people will be affected by this? About a third of the people facing foreclosure. A third of those people will be eligible for this consideration. I think the good news is this: When we pass this bill, pass this change in the law, it is an incentive for these banks and lenders to sit down before you get into bankruptcy and work out terms that you can live with. That is not happening today. These lending institutions just are not doing that. They will if this provision in the law is included.

Now, who would oppose this? Think long and hard about it. It is a hard question, right? No. It is an obvious question. This change in the bankruptcy law is opposed by the Mortgage Bankers Association. Those same wonderful folks who brought us the subprime mortgage crisis oppose this change to allow people to stay in their homes--the same people.

Have you been listening to the Presidential campaign? I have. I have a colleague from Illinois who is involved in it. You know what it is about. It is about whether the special interests control this Chamber or we operate in the public interest.

Well, this will be a classic showdown when we have this cloture vote, and we need 60 votes to move forward on this housing stimulus package. The Mortgage Bankers Association is trying to stop this bill. They do not want this change in the Bankruptcy Code to give people a chance to stay in their homes, even though it has been narrowed and modified to the point where it is really strict. They do not want this. The same people who created this crisis in America by deceiving and misleading people into mortgages which were totally unfair and totally unrealistic do not want those people to have a chance to stay in their homes even if they can make a mortgage payment.

Well, it will be an interesting outcome. Let's see how this turns out. Let's see if the mortgage bankers are going to win or if the people whose homes are on the line will win this debate. It is just that simple, and it is just that straightforward. What a shame it would be--what an absolute shame it would be, if not scandalous--if at the end of the day the Mortgage Bankers Association, which created this mess in America, ends up winning on the Senate floor. If they do, I can understand the cynicism across this country about how this body works. People have a right to be cynical if at the end of the debate we cannot move to this housing stimulus bill. I think it is important we do.

Now, there is a Senator on the other side who wants to offer an amendment to give the mortgage bankers the last word in the bankruptcy court; in other words, that the mortgage bankers have to give permission before the court can modify the mortgage. Well, what is the point if they are going to have the last word? They have the last word right now. They can renegotiate a mortgage if they want to, but they are not doing it. They are not doing it on a voluntary basis. Unless and until those mortgage bankers know this mortgage can be modified, they are not going to sit down and negotiate.

Well, there is a big argument that comes back from the mortgage bankers: Oh, you know what is going to happen here. If you give a portion of these

600,000 people a chance to stay in their homes, we are just going to raise everybody's interest rate across America.

Well, let me tell you something. That is a vacant threat. The Georgetown University Law Center did a survey and study of this proposed change in the Bankruptcy Code and said it would have zero impact on the cost of credit across America--zero. So they can threaten all they want, but do they have any credibility? Does this industry have any credibility when we look at the mess we are in today?

Four years ago, we were dealing with 1 out of 12 subprime mortgages going belly up. And now half of them? When you hear those stories, State after State, family after family, of the way they were deceived into this situation, when our lack of law and lack of regulation led to this circumstance, does that tell you the mortgage bankers were the victims here? No way. It should be in their best interest to avoid foreclosure.

What happens when a property goes into foreclosure in court? Well, the lending institution spends a fortune in legal fees, and then they may end up with the property when it is all over. Then they have to cut the grass and pick up the newspapers and the mail and make sure the place is presentable, and then try to sell it at an auction, if they can. Most of them cannot, incidentally, now. They are lucky if they get a fair market value out of it. But they want to stick to their rights under the law.

The one part of it that I like the best is when the mortgage bankers come out and say this is about the sanctity of the contract. The sanctity of the contract? Sanctity suggests holiness. If you read any of these contracts I have read and hear the terms of the mortgages these people facing foreclosure had to deal with, there is nothing holy about it. It was an unholy attempt to rip these people off, to put them in homes they could not afford under terms they never understood and then let the market work. This is not about the sanctity of any contract. When that bankruptcy court modifies your vacation condo mortgage, your farm mortgage, your ranch mortgage, they are modifying a contract. What happened to the sanctity of the contract there? That basic standard should apply when it comes to a person's home.

When we get to this bill later today, it will be a procedural motion. We need 60 votes. It will be a face-off between the mortgage banking industry, the people who brought us this subprime mess and those on their side with the Herbert Hoover mentality that says: Don't get involved; let it work out; in a year or two, it will all be behind us--and those who think we ought to stand up to allow people to stay in their homes, giving them a chance in court to modify their mortgage terms so they have a fighting chance to stay in their homes. I think that is a basic American value.

I hope my colleagues in the Senate will come down on the side of those families and on the side of bringing this housing crisis to a resolution in a responsible way.

I yield the floor.

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