Press Conference With Senator Richard Durbin And Representative Brad Miller
Interview
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SEN. DURBIN: Good morning. Glad to be with you this morning, and Congressman Brad Miller of North Carolina, who will have a statement after mine, and a number of groups are represented here as well. All of the groups that stand with us today and stood behind me for over the past year have been fighting for critical legislation that we think is important to save the homes of countless families. I want to thank Congressman Miller for joining me in this bicameral fight.
Two years ago, our economy wasn't doing badly. It seems like a long time ago, doesn't it? Around that time, I started hearing from a variety of sources that we were experiencing growing problems with the primary source of the economy's strength, the housing markets. People I spoke to from Wall Street started mentioning the increasing risk that mortgage banks were taking. Community organizers in Chicago started talking to me about the rising number of foreclosures that were beginning to hit their neighborhoods as adjustable-rate mortgages reset in large numbers and property values started to soften. Constituents started to call from all over Illinois to ask what they could do to save their homes.
In response, about 15 months ago, I introduced a bill called Helping Families Save Their Homes in Bankruptcy Act, which would make a simple change to the bankruptcy code, would provide distressed families with a little bit of desperately needed leverage as they try to negotiate with mortgage servicers. This bill would allow mortgages to be modified in bankruptcy, just like other debts, including vacation homes, family farms and yachts. Only families living in their homes would qualify; no speculators would be allowed.
This approach would solve many challenges that other modification proposals face, including the lack of participation from mortgage servicers in the largely voluntary plans; the inability to even locate some of the owners of the mortgages to get their consent for modifications; the risk that investors could sue servicers if loans are modified; the misaligned incentives of first- and second-mortgage holders that often lead to vetoes of proposed modifications; the persistent problem of default on newly modified mortgages because only the mortgage was modified, rather than the entire pile of debts that homeowners face; and the incentive structures of servicers that favor foreclosure over loan modification.
Servicers and investors would be better off through a bankruptcy change than through a foreclosure, since the modifications must provide at least fair market value plus a high interest rate on the new loan, and the costs associated with foreclosure can be avoided.
Best of all, this program would cost taxpayers absolutely nothing.
At the time that we introduced the bill last fall, we estimated that over 2 million families could potentially lose their homes. The Mortgage Bankers Association dismissed our estimate as an exaggeration when we introduced the bill. They called it a fantasy. Sadly, we underestimated the problem. Credit Suisse reported last week that they now expect 8.1 million families will lose their homes to foreclosure in the next four years. If the economy skids into deep recession, they estimate that foreclosures could exceed 10 million homes.
And yet the Mortgage Bankers Association continues to oppose this common-sense proposal, and sadly, has the votes -- at least until recently -- to stop it. I've chaired three hearings on the subject. Since last fall, I've tried to pass this bill three times on the Senate floor. We've been blocked by the other side of the aisle and the Mortgage Bankers Association every time.
Here's an example of what we're facing. A few weeks ago the chairman of the Mortgage Bankers Association claimed at an open hearing this bill would create a tax of $295 a month on every homeowner in America. I challenged him and said, "Where do you come up with that number? Give us the facts. Give us your evidence that you can make that assertion." The response: silence. It's just a number thrown at the committee hearing by the mortgage bankers, a group which I don't believe enjoys the greatest credibility anywhere in the United States.
Meanwhile, these banks that they represent have received a huge portion of the $700 billion taxpayer bailout to rescue them from their flawed market decisions. We've taken care of those sitting on one side of the mortgage table. The other side is where the experts supposedly -- that's supposedly where the experts were sitting. But it's time that the families who set on the other side of the table have a fighting chance.
Because this economic crisis will not subside until the root cause is properly addressed, I'm announcing today the first bill I'll introduce in the new session, the 111th Congress, will be the Helping Families Save Their Homes in Bankruptcy Act.
The voters demanded change last November.
The change is coming to Washington in the year 2009. And I'll not stop until families and our economy as a whole receive the help they desperately need.
I'll just close by saying that we had a hearing in Chicago last week. We produced maps that show some of the zip codes in the city of Chicago. And on those maps, we put red dots where homes were in foreclosure. It was a frightening display. In the area code 60629 -- zip code 60629, it was -- I found only five blocks that didn't have a foreclosed home on them.
This is devastating. If we don't do something to stop this increase in mortgage foreclosures, it is going to not only displace millions of Americans from their homes but it's going to take the lifeblood out of neighborhoods.
I grew up in the town of East St. Louis, Illinois. I know what happens when homes go into foreclosure, when they're boarded up, when no one will occupy them, when squatters show up, when criminals use them, when arson finally takes place and you have a burned-out, gutted dwelling where you hope to draw enough money together to plow it under. Finally you do it. You got a vacant lot when it's all over. We don't want to see that anymore in America.
We need to do something to move this off dead center, and I think this bill will do it.
Congressman Miller, thank you for joining me in this effort.
REP. MILLER: Thank you, Senator Durbin.
I am also eager to continue this fight next year. Millions of middle-class families are now under water. Their mortgage -- their mortgage now exceeds the value of their home and they are stuck in a mortgage they can't pay and can't get out of. When they lose their homes to foreclosure, they lose their membership in the middle class probably forever.
Middle-class families have seen their life savings evaporate with the collapse in the value of their homes. We are not going to stop the downward spiral of our economy until we stop the collapse of home values. And we are not going to stop the collapse of home values until we get control of foreclosures.
As Senator Durbin just said, we have had -- we have heard one explanation after another from the financial industry for why they voluntarily agreed to so few meaningful modifications of mortgages, mortgages that they should never have made or bought in the first place. Almost three-quarters of their claim modifications are just payment schedules with no change in principal or interest. It is no surprise that many of those homeowners are quickly in default again.
It is hard to know what to believe anymore. Maybe some of their explanations are true and legitimate for some mortgages, just as probably somewhere in America, every year, a dog really does eat a schoolchild's homework.
But voluntary modifications are not even touching the foreclosure problem. That legislation that Linda Sanchez and I introduced last year would help families who can afford their home, but not their mortgage, save their home from foreclosure.
It provides an orderly, predictable, sensible judicial modification of predatory mortgages. And it will provide a model, a template, for voluntary modifications outside of bankruptcy. It will protect every other family in the neighborhood from the collapse and the value of their home that results from the foreclosure of a nearby home. And it doesn't cost taxpayers a dime.
I look forward to working with Senator Durbin and his former colleague from Illinois, who has promised not just to sign this legislation if it reaches his desk but to work to make sure that it does.
And now I would like to introduce Nancy Zirkin from the Leadership Conference on Civil Rights.
NANCY ZIRKIN (executive vice president, Leadership Conference on Civil Rights): Thank you very much. I'm Nancy Zirkin, executive vice president of LCCR, our nation's oldest and largest human and civil rights coalition, representing over 200 national organizations.
Homeownership has always been vital to all the communities that LCCR represents. WE argued for years that the modern mortgage system was terribly flawed, with countless irresponsible and abusive loans made, and we called for a lot of regulation. Now after years of denial, and with the recent Credit Suisse estimates, it is quite obvious that the mortgage crisis is definitely not contained. And today, collective response based on voluntary industry action has done very little to help.
It's clear that the best way to quickly reduce foreclosures is to let desperate homeowners modify their loans in court. It would give borrowers leverage to deal with the services and give them a last resort when all the negotiations fail. It doesn't use public funds, as Senator Durbin said.
And more importantly it will quickly help other homeowners and our economy, by keeping the value of their homes from actually falling, stopping what everyone has described as a vicious cycle.
We know that the Durbin and Miller bills have faced intense opposition, from the industry, which is sort of ironic, since so many of them have been bailed out of bankruptcy. The industry says that allowing bankruptcy would make investors hesitant, limiting access to credit for minority populations. The fact is, right now there is very little credit anyway.
The industry has been wrong every step of the way on this issue. And because loans are now so complicated, voluntary efforts are not helping enough and cannot be a substitute for helping homeowners directly. The stakes are too high, because the credit crisis won't be mitigated, until we drastically reduce foreclosures.
We strongly urge Congress to pass the bankruptcy relief for homeowners, when it comes back in January. And we're very grateful to Senator Durbin and Congressman Miller for leading the way on this very important bill.
Thank you.
SEN. DURBIN: We'll take questions now and we'll confine them to the issue at the press conference in the first round. There may be some others that you have in mind. (Laughter.)
Q Do you think you have the votes? (Off mike.)
SEN. DURBIN: I hope so. With 58 Democrats, maybe 59, we still need help from the Republican side of the aisle. And I'm hoping that we can get that help, with the support of the president.
President-elect Obama supported this concept during the campaign. As we tried to come to a conclusion on what to do, about housing and foreclosure, he realized we couldn't pass it and asked that we take it out of the bill, which I agreed to. But I know that he believes in it.
This is the only way to get everyone to the table. When I talked about that zip code in Chicago, there's one bank, U.S. Bank in Minneapolis, that has 219 foreclosures in one zip code.
When we contacted the bank, they told us that even though they filed 219 petitions for foreclosure, in 80 percent of the cases they were acting as a trustee. They didn't actually hold the mortgage individually, which means there are many other players that need to be brought to the table before there can be a negotiation.
There's only one way to bring them to the table. That's a bankruptcy judge who says, "We need to sit down and work this out." Otherwise, we're going to continue, I'm sorry to say, to mope along the way we've done and more and more people face foreclosure.
Q Is the bill any different at all from the --
SEN. DURBIN: Yes. There have been several variations. The initial -- the initial bill, this one's very comparable to. Bankruptcy court will only help homeowners, can only go down to fair market value, can only extend the term up to 40 years, and there are provisions in there about the interest rates to be applied.
Now, when we were trying to negotiate on the floor, we added a few other things. If it gets to the point where that's what it takes to pass, I'm willing to do it. But this is our starting point.
Brad, did you want to say a word here?
REP. MILLER: I wanted to -- I wanted to say a word about President-elect Obama's support for this. He did call for the passage of this bill in the campaign repeatedly. Unfortunately, he called it Senator Durbin's bill. (Laughter.) I hope that now he's in a different position, he'll have a broader perspective.
But fully half --
SEN. DURBIN: (Off mike.)
REP. MILLER: He did. In fact, we should point that out to him.
Fully half the Democrats who voted against the economic stabilization plan said specifically it was because there was not enough in it to help homeowners facing foreclosure and cited specifically bankruptcy relief, the ability to modify mortgages in bankruptcy.
I know that Senator Obama made many calls to those members and assured them that not just would he support it, but he would work to make it happen.
Q Do you think it could hitch a ride with the stimulus and make it easier to pass? Do you know, is that an option?
SEN. DURBIN: I talked to Rahm Emanuel about the stimulus, and I believe that Larry Summers is really kind of the guiding force now on the stimulus package. And it's my belief that we will be given general goals to be reached and we'll work with the administration to fill in the specifics and particulars.
And I think this should be part of it. I hope we can include it, because if we don't deal with mortgage foreclosures, we're not getting the root cause, the catalyst, for the recession we're in.
I think the housing market has to get well. And if it's going to get well, we have to deal with the foreclosures that have reduced property values, reduced confidence in investment in real estate, and really devastated the housing industry.
Q Senator, are you -- I'm not going to the other issue, but sort of somewhere in between -- (laughter).
SEN. DURBIN: There's an in-between?
Q I'm not going there yet.
Are you confident that you have -- that you do have 60 votes on the auto bailout, and it's just a matter of time at this point?
SEN. DURBIN: We have talked to a number of Democratic members who are favorably inclined to vote for it, and I can't tell you how many will come from the other side of the aisle. We've received no commitment from Senator McConnell.
Q Senator Durbin, are you now ready to comment on --
SEN. DURBIN: Unless -- any other questions on this? Yes.
Q You said that there wouldn't be a price to the federal government for this.
SEN. DURBIN: That's right.
Q What about the price to homeowners and to bankers? Is there a cost to them?
SEN. DURBIN: Well, when we had a hearing in Chicago and a representative Molly Sheehan from Chase -- I asked her point-blank, "I've heard over and over again that it costs $50,000 for a bank to have a home go through foreclosure." She said, "I think it's more." So we know that there's a cost for the foreclosure proceeding, and that banks end up with the responsibility of cutting grass, providing security, guarding the property, trying to rehab it, trying to get it back on the market -- things which most banks don't want to get involved in.
So what we're doing is protecting the bank by saying that the bankruptcy court can go no lower in the principal than the fair market value of the property. From my point of view, the banks will come out ahead. What they need is a mechanism -- the bankruptcy court -- and an incentive -- the bankruptcy judge -- to make this judgment for negotiation. And they don't have that incentive today.
Q Senator, one other question on the auto aid. When do you plan to vote on that?
SEN. DURBIN: Well, I was trying to reach Senator Reid before I came here so I'd be a little more credible in what I had to say. But our original thought was to try to bring it up today, but it may be wishful thinking. I really should talk to Harry, so please put an asterisk next to that: Durbin really wasn't sure, and he was trying to be kind.
Q Another question on this issue. Can you talk about the numbers of people who are facing foreclosure who aren't facing bankruptcy? And how many people are there and how many -- (off mike)?
SEN. DURBIN: It's about a third that we think might end up in bankruptcy court. But the thing about this is, if we create this option, then on the front end of the process the mortgage lenders have to know there's a chance this is going to end up in the hands of a bankruptcy judge. That, I think, creates an incentive for them to sit down and negotiate, even if ultimately that doesn't happen.
REP. MILLER: And that happened in 1986. Congress did almost exactly the same thing for family farms, to allow the modification of mortgages on family farms.
What happened in 1986 was, a few family farmers went into bankruptcy, had judicial modifications. But then the lenders began modifying outside of foreclosure -- outside of bankruptcy on exactly the same terms that a bankruptcy court would have imposed.
Q Senator?
SEN. DURBIN: Yes, sir.
Q Can we come to the question on Governor -- on your state's governor yet?
SEN. DURBIN: Well, any other questions on this? If not, class dismissed. (Laughter.) If you all -- you're welcome to stay, but this is about something totally unrelated to foreclosure.
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