New Direction for Energy Independence, National Security, and Consumer Protection Act and the Renewable Energy and Energy Conservation Tax Act of 2007--Motion to Proceed

Floor Speech

NEW DIRECTION FOR ENERGY INDEPENDENCE, NATIONAL SECURITY, AND CONSUMER PROTECTION ACT AND THE RENEWABLE ENERGY AND ENERGY CONSERVATION TAX ACT OF 2007--MOTION TO PROCEED -- (Senate - February 29, 2008)

BREAK IN TRANSCRIPT

Mr. REED. Mr. President, let me commend the Senator from Ohio for his very thoughtful and very persuasive remarks about a crisis that is gripping almost every family in this country. We are in an extraordinarily daunting moment in our history, and I was disappointed, to say the least, when our colleagues on the Republican side blocked consideration of the Foreclosure Prevention Act of 2008. Every household in this country is beginning to recognize the specter of decreasing house prices, and for many it is not just a looming potential, it is a reality, and it is forcing them to consider very difficult choices in their own family lives.

We have had a situation over the last 8 years in which the income of working families has been stagnant, and in contrast, prices for items that are essential, such as energy and food and health care, have gone up dramatically. Families across this country have been squeezed by flat incomes and rising prices. But there was one point of hope and confidence, a foundation, at least, for their hopes going forward, and that was the value of their home because it was appreciating. Now that has reversed dramatically, and there are estimates that if nothing is done, if the administration continues to block efforts through their colleagues here in the Senate and the House, we could lose somewhere up to 30 percent of the value of homes throughout the United States, from their peak several years ago to the trough that is anticipated. That would mean the loss of $4 to $6 trillion in household wealth--a staggering figure. It is a figure that, from a macroeconomic standpoint, would have huge ramifications.

But let us step down to the actual effects on a family. What does it mean? Well, it means your senior in high school who was planning on going to a prestigious college is not going there. They are going to find an alternative, maybe a State school or another school, because you were going to pay for that, partially, by taking some money out of your house, which was worth so much. If you didn't have adequate health care, that was the reassurance you had, that if there was a major health care crisis in your family--a child or your spouse--that at least you could go in and quickly get some money. Now that has evaporated. If you are a retiree or about to retire, your plan was pretty simple: You had a home you were going to sell and you were go ing to use the profits to help you fund your retirement.

This housing crisis is affecting working families across the country. They are now discovering, around the kitchen table, that their plans are being frustrated. We have to do something.

Yesterday, when this Senate failed to at least consider moving to legislation like this, I think it is a telling indication of the detachment from the reality of American lives that the administration and some of their colleagues here have.

Today, in my home State of Rhode Island, an added complexity, unemployment, is beginning to creep up. And ``creep'' is probably too mild a word. It is 5.67 percent, the worst record of unemployment we have had since the mid-1990s. That is another blow to the working families in this country.

So we must act. One other startling statistic to me is today it has been estimated that 10 percent of the households in America are upside down, not physically but financially. Ten percent of the homes, the mortgage is greater than the value of the home because of declining home prices.

Now, what does that mean? Well, not only have you lost your nest egg, in many cases you now are in a situation of being tempted to just walk away from the home. Why are you making expensive mortgage payments at great sacrifice when the home is not worth it?

These are real problems people across th e country are facing. It is no longer a localized problem. It is no longer a certain section of the country is having a bad time, but the rest of the country is doing well. Nationwide, for the first time since the Great Depression, we have seen housing prices decline. That is a phenomenon that has to be dealt with. Ignoring it or suggesting that we are indifferent to that, as I think one can assume from the action of yesterday, is, I think, not only wrong, it is bad policy. It also is bad policy because the sooner we take proactive action, the more effective we will be in lessening the consequence of this crisis on working Americans.

We are going to act eventually. This is not going to go away. The staggering numbers that Senator Brown pointed to, the estimates that there are so many more interest rate resets and so many more people will be overwhelmed by these alternative mortgages, these subprime mortgages, that is not fiction; that is the projection of the financial analysts. It is going to happen .

We have to move now. If we move now, we move deliberately. We cannot eliminate some of the pain, but we can certainly lessen it. We also have to recognize, too, that we can only help those who are prepared to carry and shoulder the mortgage going forward. But I think if we act, if we act properly, we cannot only make progress, but we can respond to what is becoming an overwhelming cry for relief for American families across this country.

In Rhode Island, for example, we have seen mortgage delinquencies increase from 6,100 in the third quarter of 2005, to 10,300. Again, Rhode Island is the smallest State in the Union. We have 1 million people. So these numbers, when you project them to Ohio, are much larger. But in my State, we are, unfortunately, seeing unprecedented foreclosures.

According to the Joint Economic Committee, the number of subprime foreclosures in Rhode Island will total 5,800 between the third quarter of 2007 and 2009. We are seeing an acceleration and, in fact, we have the dubious distinction of having the highest foreclosure rate in New England. There are other parts of the country that are worse, but we have that unfortunate distinction.

We are going to see the cost of these foreclosures in Rhode Island rise to an estimated level of $670 million from the end of 2007 to 2009. Those are huge figures from a small State like mine. In fact, forecasters are estimating that the foreclosure cost could total nearly $104 billion nationwide. But one of the things about these numbers tha t the numbers are growing--I have been looking closely at this crisis since last April when I was chairman of the Subcommittee on Securities and Insurance. We had a subcommittee hearing on securitization of subprime mortgages and the experts estimated that the subprime crisis was going to result in $19 billion in losses worldwide; that it was over because the mortgages were no longer being issued; that we were in a situation that would be almost self-correcting if we just let the markets work their will.

Again, I think another strong rationale for immediate action, not simply letting the market take its course, is we are seeing not only a deterioration in the financing mechanisms in the mortgage market, but this liquidity crisis is spreading over to other financing mechanisms. We have seen financing mechanisms for munici pal bonds, for example, literally shutting down. There was a technique where municipalities and hospitals would, on a weekly basis, reset the rate for their bonds in an auction. The auctions have failed. The Port Authority of New York just a few weeks ago went from an interest rate of 4 percent to 20 percent, the default rate.

I have talked to a hospital in my State. I asked them, among many other issues, what is happening with respect to their financing. Their rates are shooting up because their option securities are not working any longer.

This credit crisis, this liquidity crisis, is spreading from mortgages to car loans to securitization of credit card receipts to municipal securities, and it is slowing down the economy.

Now, the President does not think we are going into a recession. But, frankly, most everybody else does think we are going into recession. And we have to act, not only to directly respond to this housing crisis, but also to pull this country back as quickly as we can from this pending recession.

I think one of the most important lines of approach to dealing with this problem is bolstering the housing market. That was one of the major engines that moved our economy for so many years. If we let it deteriorate, if we just shrug our shoulders and say, eventually, it will come back, we not only will see a very poor housing market , we will see a recession. And it will be more severe and more consequential than it ought to be.

Now, the Federal Reserve has cut interest rates dramatically. We, very quickly, in a bipartisan fashion, passed a $168 billion stimulus package that will help. But I do not think it is going to be sufficient unless we make significant efforts to deal with the housing problems that are affecting all Americans today.

The administration proposed a Hope Now Plan, a voluntary effort to deal with foreclosure problems. And, again, as Senator Brown pointed out today, to date 3 percent of potential foreclosures have been avoided through this voluntary effort. This is not an effective way to deal with the huge problems that threaten the economic well-being of this country and all of the families of America. This administration is great on slogans but poor on strategy and execution. Just a week after I was talking to the Under Secretary of the Treasury about the Hope Now Program, I said: Well, do you have a pla n B? This does not seem to be working.

``No, this will work. We will have the metrics in a few weeks.'' Then the administration announced another program. I think it is called the Lifeline
Program. Well, we need something more than slogans. We are going to need something more than hopeful wishes that everyone will get along and coordinate together. We need definite help for the homeowners in our communities.

Embedded in the legislation that Senator Reid proposed was that specific kind o f help: foreclosure counseling funding, CDBG monies for communities to deal more comprehensively with the problems caused by foreclosures, because one of the consequences of foreclosure is it is not just the individual's home, statistical analysis over many years points out very clearly that the surrounding homes lose value when there is a foreclosure on the block. And if those homes are on the tipping point, guess what. They will tip into foreclosure. I do not think I have to tell anyone in this Chamber, b because we have seen it before, that once you have this growing sort of malaise in the community, it spreads block by block by block by block until you have a community-wide problem of not only foreclosures but of despair.

I am taking, I think unfortunately, an example from Senator Brown's State. But I read a few weeks ago about a community in the Midwest, either Ohio or Pennsylvania, and it was an old ethnic community. In fact, I think the nickname for the community was Slavic Town. There, the fore closures have been so extensive that literally gangs are going in and ripping off the vinyl siding, the plumbing. They are taking out the copper piping because it has been abandoned, this forlorn community, in the heartland of this great country.

A tragic case was a retired gentleman who was trying to protect his property which he had worked for all of his life. He was killed by some of these marauding gangs. That is here in America. We are just going to sit back and say: Well, the market will adjust someday. No, I think we have to do much more.

Unfortunately, because of the policies of this administration, we are not as well positioned to do what we have to do. Yesterday Chairman Bernanke was before the Banking Committee. In response to a question by Senator Dodd, he said: Frankly, we are in a worse position today than 8 years ago to deal with this crisis, the housing crisis. Falling productivity, falling value of the dollar--yesterday, the dollar hit a new low against the Euro, and I think today against other currencies. Surging oil prices--yesterday the price of oil went to $102 a barrel, which is translated automatically at the gas pump into higher gasoline prices, higher heating oil prices.

These are huge, huge, huge problems. Because of decisions made by this administration, we do not have surpluses we had 8 years ago. We are committed to a conflict in Iraq which costs $190 billion a year. And even with a change in policy, there will be, unfortunately, not a dramatic shift in spending in th e next several months because it takes time to disengage and to change policies.

So we are seeing economic vulnerabilities because of, I think, the policies of this administration. We have forfeited the strength we had 8 years ago to deal with these issues. We understand, too, from looking across the globe at other countries that if you do not move promptly and aggressively and deal with problems like this, they do not go away, they get worse.

In the 1980s, we had a S&L crisis. It took about 2\ 1/2\ to 3 years for, first, the Reagan administration, then the George Herbert Walker Bush administration to deal with it. In those 2 1/2 years, experts on either side of the aisle pointed out that the cost of remediation went up and up and up. I fear that is the same situation we are going to have today unless we deal promptly and immediately with this housing situation.

Again, I think the vote yesterday to stop consideration of legislation to help deal with this crisis was very short-sighted and unfortunate. Now, as I said before, the legislation we would have considered, the Foreclosure Prevention Act, of which I am a proud cosponsor, deals with, in a very pragmatic way, many of the features of the housing crisis that are of immediate concern: the $200 million foreclosure counseling, and part of that has to be not only setting up the counseling but also outreach.

We have to do more of that.

It also allows State housing finance agencies to increase their bonds, raise capital to buy mortgages to essentially take out the current mortgage holders, renegotiate the terms with the borrower, and put them in a mortgage plan they can live with and afford. In fact, the President has called for that, but he is objecting to its inclusion, I presume, in this legislation. Then there is a change in the Bankruptcy Code, which has been carefully tailored so as not to roil the financial markets. It would allow a very limited category of individuals who have these subprime mortgages to go into bankruptcy court and allow the bankruptcy judge to set up a new payment plan. The first criterion he or she would have to look at is the fact that these individuals do, in fact, qualify for bankruptcy protections, that if there is a restructuring of their mortgage loan, they can carry out the terms of that loan.

This is not only giving people a chance who don't have the wherewithal to take up that opportunity. There is also language in the bill that sets the lowest rate charged as the prime rate, plus a premium for risk. So this does not allow a bankruptcy judge to take an 11-percent mortgage and make it a 1-percent mortgage or a zero-percent mortgage. There is a very narrowly tailored exception. As my colleague, Senator Brown, pointed out, you can do that with a second home. You could do that with a farm, if you are in bankruptcy. I don't see why, in this particular crisis, we cannot extend that same protection to homeowners who have subprime mortgages and need immediate help. I think it would accelerate efforts to not only help these individuals in bankruptcy, but it would send a strong message to the financial community that unless they get engaged with working out these foreclosures and mortgages, there is the alternative of bankruptcy court which, if they think it is so onerous, then they should be even more incentivized to work with borrowers to ensure foreclosure doesn't take place and new mortgage terms are negotiated.

An additional element in this legislation is language I suggested as a way to prevent a reoccurrence in the future of this type of mortgage problem by giving the borrowers, in a timely way before they close on the loan, specific information that is essential. The most specific information is the maximum payment they would pay under the terms of the mortgage. There is a lot of discussion about people who were winking at each other across the table, can' t afford the mortgage, but ``I will take it if you give it to me.'' Many people honestly walked in, sat down, and thought they were getting a mortgage of 5 or 6 percent with a payment on a monthly basis of perhaps $1,500 or $2,000. Tough to afford, but it was within their budget. But lo and behold, years later or months later, that initial teaser rate became much higher. That maximum payment should be disclosed. A borrower should be able to look at the piece of paper and say: At some point in this mortgage, I will have to be paying $2,500 a month. That is the type of information people need to know. Frankly, many would say: I can't afford that.

There is a suggestion I have heard so often in the debate that we would be rewarding families and homeowners who were trying to take advantage of a good deal with these subprime mortgages. The impression I have, from talking to people in Rhode Island, is that for many families, going back 2 or 3 years, they found themselves saddled with extraordinary credit card de bt at interest rates that could be as high as 15 to 18 percent. Why? If you have a health care problem, where do you go? The first response is to put it on the credit card. If you have to go to an emergency room and you don't have health care insurance, if you have an unexpected expenditure, the first thing you do is to put it on the credit card. So many families were stuck with a huge credit card bill.

Somebody walks in and literally sells them a bill of goods by saying: You have 18 percent interest rates. I can put you in a mortgage for 2 years at 9 percent. Of course, it goes up a little later. The little later was not dwelled upon. So for many families, this was not an irresponsible, irrational act.

They were buying time, in other words. They were hoping this would be a bridge to a better future, that they would get a raise at the job so they wouldn't have to depend on their credit cards and, when the reset came up, they would be able to refinance. Little did they know that many of these subpri me mortgages were constructed so there was a prepayment penalty exactly at the time the reset took place. So as you tried to get out of it, you discovered you would be paying a huge penalty.

The point I wish to make is we have families who now, for the last almost decade, have been struggling. They have exhausted all their options. The last option was their home. Now that option seems to be evaporating in terms of financial strain and support. What we have to do is respond. I believe that is the nature of Government, to respond to the genuine concerns, the genuine expectations of the people we serve. I defy anyone in this Chamber to go back to their States and talk not just to low-income families but to every family and say: Shouldn't we be doing something dramatic, challenging, visionary, and doing it immediately with respect to housing? The answer would be an overwhelming yes. We should listen to the people of America.

I yield the floor.

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