New Direction for Energy Independence, National Security, and Consumer Protection Act and the Renewable Energy and Energy Conservation Tax Act of 2007--Continued
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 - April 01, 2008)
BREAK IN TRANSCRIPT
Mr. SCHUMER. Mr. President, a few minutes ago I attended a little press briefing with Senators Reid, McConnell, Dodd, Shelby, and other members of both leadership and the Banking Committee. It was a very good meeting because, at the meeting, Senators Reid and McConnell empowered Senators Dodd and Shelby to get together and try to come up with a compromise housing package. That is the best news we have had in this housing crisis in weeks and weeks. The eyes of America are looking at the Senate and saying: What are you going to do about the housing crisis?
Since we last adjourned, we have had a near meltdown on Wall Street. Since we last adjourned, new numbers have come out that show thousands more are losing their homes weekly. Since we adjourned, we have seen buying power is down for the average person and housing values are down.
For most people, housing is their piece of the rock.
That is their largest asset. When they are worried about their home, they are worried about everything. When the middle-class consumer gets worried, the economy catches cold, and that is what has happened.
Yet for weeks and weeks the Senate has been paralyzed in terms of doing things about housing. We were very quick--the Fed--to go rescue Wall Street, and they were looking down the abyss. I don't think they had any choice. I was supportive of that. But I am not supportive of a bifurcated policy that says when a major financial company gets in trouble, we rush to their aid, but when John and Jane Smith homeowners have trouble, we say: You learn. You are a moral hazard. If we help you, then everyone else will not repay their mortgages. First, the argument is unfair. John and Jane are probably more blameless than many of those who undercapitalized Bear Stearns and played it right at the edge. Second, this moral hazard argument makes no sense. The statistics show that when a homeowner owns his or her home, when a family owns their home, they do everything to repay that mortgage. They don't go on vacation. They don't buy the new suit of clothes for the kid who is starting school. They cut back on what they eat. That nice Friday night out at the local restaurant which the family looks forward to goes, all so they can pay their mortgage. So this moral hazard argument that if we help people who are blameless makes no sense.
Let me tell my colleagues about a typical person who has suffered foreclosure. I met many of them. I actually sat down and talked to some of them from New York. So that my colleagues can understand, these great thinkers up in their ivory towers, the conservative think tanks, who are saying: You better learn your lesson, don't even know what is going on. Let me tell my colleagues about Frank Ruggiero. He is a retired subway motorman. He lives in Ozone Park, Queens. His income is--I should say was, because Frank passed away a month ago, but that doesn't have anything to do with the story. Frank had a good pension. His union, TWU, provided him a good pension of $28,000. His Social Security was $11,000, and he had a nice little house in Ozone Park, a working-class neighborhood in Queens, New York City, that was worth--he had paid 16 years of a 30-year mortgage. He hadn't missed a payment, as most homeowners have not. They pay whenever they can.
Frank got diabetes. His health care plan would not pay for the treatment the doctor said he needed, and he was desperate. So Frank saw an ad in the newspaper and it said: ``Get quick cash. Refinance your home.'' He called up the number and a mortgage broker came over. This mortgage broker is unregulated. He didn't come from a bank. He was an independent operator. That is where most of the trouble was, from these unregulated mortgage brokers. We are not dealing with that in this bill, but we should in a future bill. A bill I have introduced would deal with this issue. Anyway, he asked the mortgage broker: Could I get $50,000? He said: Yes. And Frank asked the right question. He said: How much will my mortgage go to? The mortgage broker said: It will go from $1,100 a month to $1,200 in January. Well, Frank thought, I can afford that, so he signs the mortgage deal.
Let me say three things about what happened to Frank. Frank is typical--typical. His mortgage did go up to $1,200 a month the next January, but the following January, it went up to $3,900 a month. Frank's income was $39,000. A quick calculation will show that $3,900 a month is more than Frank could pay. If he didn't spend one nickel for food, clothing, health care, and everything went to the mortgage, he still wouldn't have enough.
Why? Was Frank defrauded? No. On page 37 of this 50-page mortgage document, it did say the mortgage would go up, but it didn't say so in a language you or I would understand, only that certain things would happen after this, that, and the other. I think if you read it--and I read it--it was deliberately disguised. So there was no fraud. There should have been, but our laws for mortgage brokers don't say it is fraudulent to sell somebody a mortgage that is beyond what they can pay.
The second point: Of the $50,000 Frank was supposed to get, guess how much he got. He got $5,700. You say: $5,700, how could that be? Because in that disguised mortgage document, it said the broker would get a commission. What it didn't say is the broker's commission from a mortgage company, also unregulated, also not a bank--the higher the interest rate the agent got Frank to sign for, the greater the commission. If it was a no-document loan, which this was no documents--another story for another day, and I will be back on the floor this week, if we are able to debate this bill, and talk about all these things because I have studied this issue and I have been working on it for a long time. It was a no-doc loan, an absurd concept; how investors bought no-doc loans is again something we have to look at. But he got an additional commission for that.
Then there was a prepayment penalty. If somehow Frank would prepay this ludicrous mortgage, there would be a big penalty to prepay. When should that ever happen? Those should be outlawed.
So this guy got $22,000, the mortgage company got points of $11,000, way beyond what any bank would charge or would be allowed to charge. Between the appraiser, the lawyer, and everyone who came with the package, they all took their piece and Frank got $5,700, all because of the structure of the mortgage company. You say: Well, what about the mortgage broker? He is probably off in the sunset on his yacht with all the $22,000 he made from duping the Franks of the world. Where is the mortgage company? It is bankrupt. Frank is stuck.
The third point: Frank was a prime borrower. He had a FICO score somewhere around 700. He had paid his mortgage payment religiously for 16 years. He had never missed a credit card bill. Frank was one of those old-fashioned people who believed you pay your bills, so he was a prime borrower. Sixty percent of those who have subprime mortgages in or about to go into foreclosure are prime borrowers. They pay their loans. They are not trying to gyp anybody. It is a disgrace. The sad fact is if Frank hadn't answered that ad but had walked into a local bank, because they are regulated, they would have said to Frank: You need $50,000? Fine. We will sign you a new 30-year fixed-rate mortgage and that will cost you $1,500 or $1,600 a month instead of $1,100. That would have been a stretch for the Ruggiero family, but they would have made it. They would have signed it and he would have gotten his money and his treatment.
What are we saying, that Frank should be punished for what he did? I ask some of those ideologues from the think tanks and even from the other side of the aisle: What did Frank do wrong? What did Frank do wrong? What harsh lesson are we going to impose on the Franks of the world, and what will anyone else have to learn from them? So the moral hazard argument makes no sense.
We have to do something. Now, what this bill contains is something Senator Brown and Senator Casey and myself and, with Senator Murray's help, have been working on for a long time, where somebody on the ground today could go to Frank, if Frank were alive, but to people similar to Frank, and they could help him rewrite a new mortgage that he could repay and he wouldn't lose his home. Now, after 6 months of the administration opposing and opposing and opposing, Senators Brown and Casey and I, again with Senator Murray's help, were able to get $180 million into the omnibus budget bill at the end of last year. Guess how much of that has been used. Mr. President, $160 million already, after about 6 weeks, 7 weeks since it passed. We need more. To me, the most important part of this bill, with a lot of good provisions, is the money for the mortgage counselors. Not because it is a great, heroic thing to do, not because it dramatically restructures our economy--these things are needed--but because it saves people's homes. It saves the Franks of the world, their little piece of the rock, which they struggled so hard and long to own and to keep. So we proposed another $200 million. To be honest, we need $500 million. To compromise with the other side--they hate all Government spending, some of them--we have said $200 million.
Then, when the mortgage counselor came around, you would still need money to refinance the mortgage. That is why there are provisions for mortgage revenue bonds in the proposal. There is also a proposal for CDBG money. That seems to raise the ire of some: Government money. Well, let me say what the CDBG money will do. The houses that are already foreclosed upon and are vacant are cancers on neighborhoods. Let's say you are a homeowner anywhere within a tenth of a mile of a home that has suffered foreclosure; a vacant home in your neighborhood brings the home values down 1 percent, each vacant home. So a totally innocent person suffers. No moral hazard here. You could have paid your mortgage off and you are hurting because there are foreclosures. What this provision will do is allow the State, the local governments, to buy up that foreclosed home, fix it up, and sell it. Isn't that a good thing or are we again going to stay in our ideological ivory tower and say: That is the Government spending money. Of course it is the Government spending money. We spend money for soldiers. That is an external cost. Foreclosed homes are also an external cost. So this is a good package.
The final provision is a bankruptcy provision which I support and I hope will stay in the bill. I know it is controversial. But Senator Durbin has wisely modified it. The argument against it is it would raise interest rates because people would build in the cost of the lower repayment once somebody was in bankruptcy into the original cost of the mortgage. So what Senator Durbin did in an effort to compromise is actually say it will only apply to existing mortgages, not forward-looking ones, not ones that are going to be signed tomorrow. So it can't affect future mortgages. So these are five good provisions.
Now, I wish to say to Senator McConnell and Senator Shelby, and I think I speak for just about every one of us on this side of the aisle: We welcome additions.
We welcome discussions. Senator Johnny Isakson, of Georgia, has a provision about tax credits for first-time homebuyers that might encourage the housing market to get going again. I think it is a good provision. I praised him while we were on break. Senator Isakson should get to offer his amendment.
There are many other amendments. Senator Carper worked diligently to see that FHA reform comes forward. Senators Dodd and Shelby are close. The only disagreement, as I understand it, is over what the limits should be. The administration and some of us, including Senator Dodd, support $740,000 approximately, and Shelby says $400,000. I cannot believe we cannot work that out. I say to Senator Shelby that in places such as Long Island, where the average home costs about $450,000, we don't even cover half of the homes right now. It was always intended that about 80 percent of the homes be covered--not just the very wealthy but middle class and down. Hopefully, they can come to a compromise on that.
Anyway, this is good news. I know what happened. Two weeks ago, when we proposed the same thing, we were blocked. I talked to some of my colleagues on the other side of the aisle who wanted to put a bill together. They said there were some who said the only debate we should have on this is to reduce the estate tax or make permanent the Bush tax cuts. With all due respect, neither of those has anything to do with solving the housing crisis, whatever your view is.
Then something happened. We had a meltdown on Wall Street and all these new housing figures I mentioned during the 2 weeks we were away. I am glad to see that the minority leader and others have now seen, hopefully, the price for inaction, the price for a narrow ideological commitment--no Government, as our economy goes down the drain.
I am hopeful, and I pray that the negotiations that are going forward right now between the Chair and ranking member of the Banking Committee will bear fruit. Let us hope we can spend the rest of this week far more productively than we spent the last week here in session. Let's hope we can debate housing. Let us hope we can help the Franks of the world, who have done nothing wrong and need help. When we help the Frank Ruggieros of the world, we help our economy gradually get better.
Mr. President, I yield the floor and suggest the absence of a quorum.
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