Press Conference With Senators Richard Durbin, Chris Dodd, Chuck Schumer, and Representative Brad Miller

Press Conference

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SEN. DURBIN: I think Congressman Brad Miller is going to join us. And I hope he will. He's been one of my co-sponsors from the beginning. And John Conyers would be here, but has a conflict and certainly supports what we're here to announce.

We've had a breakthrough today in proposed legislation to change the bankruptcy code so that those who are facing mortgage foreclosure have an option that currently is not available under law. For many years, those who entered into bankruptcy could take parcels of real estate that currently represent second homes, vacation homes, condos in Florida, farms and ranches. And if they were facing foreclosure, the bankruptcy court could basically rewrite the mortgage so that they could stay in their homes, if it was a possibility.

We specifically, under the law, excluded the principal residence. Hard to explain, but for years every other piece of real estate you owned subject to foreclosure, going into bankruptcy, could have the mortgage rewritten by the court, but not your principal residence. So as a consequence, going into this mortgage foreclosure crisis, many people with their homes at stake, facing foreclosure, headed into bankruptcy, had no way to have the mortgage rewritten in the bankruptcy court, even if they still had an income and a change in interest rate or principle was all they need to stay in the home.

So I've been trying for almost two years now to change this. It was controversial for the longest period of time, opposed by many associations and major financial institutions. But today I'm happy to be joined by my colleagues, Congressman Chris Dodd, the chairman of the Banking Committee and my --

SEN. DODD: Senator --

SEN. SCHUMER: He was once a congressman.

SEN. DURBIN: Formerly a congressman, now Senator Chris Dodd.

SEN. DODD: (Off mike) -- something happened here. I didn't -- (laughter) --

SEN. DURBIN: As well as Chuck Schumer, who has been a leader on so many of --

SEN. SCHUMER: Senator Schumer. (Laughter.)

SEN. DURBIN: -- Senator Schumer, a leader on so many of these issues; Brad Miller and others who have come together to make this a possibility.

Today, we're announcing that Citigroup has joined us in an effort to change this bill in a way that they can support it.

The changes they have asked for, we believe, are eminently reasonable.

What they've asked for is that these provisions would only apply to existing mortgages, not prospectively; secondly that the person who is taking advantage of the restructuring of the mortgage, in the bankruptcy court, at least contacted the bank or financial institution, at least 10 days before filing bankruptcy, to try to work out the differences and negotiate, and finally that if there are any violations of the Truth in Lending Act, of a minor nature, not major nature which would lead to recision, that that would not lead to voiding the mortgage contract in the bankruptcy court.

I think those are eminently reasonable. I want to commend Citigroup. They showed real leadership on this. First major financial institution to step forward and to say, we understand; this is a crisis in America; the current efforts, as good as they may be, have not resulted in a dramatic change or a reduction in the number of mortgage foreclosures.

Now, let me tell you what, I think, is going to happen. I hope other institutions will follow suit. I've been on the phone today -- others have as well -- reaching out to other financial institutions, asking them to reconsider their opposition to this amendment.

If they'll join with Citigroup and others, and we can create a force that brings a bipartisan vote to the Senate floor, I think, we can enact this. And I hope we can make it part of the Economic Recovery and Reinvestment Act that the administration is considering. If not, I hope to move it in some other fashion.

The last point I'll make, before turning it over to my colleagues, Senator Dodd and others, is this. The notion here is to create the environment for negotiation, so that those who are holding the mortgages will not wait until bankruptcy, that they'll sit down ahead of time with the prospects that they're going to have this mortgage rewritten, in bankruptcy, and say, let's see if we can do it before they go to bankruptcy court.

It creates a more positive negotiating environment. And I think financial institutions, many of which have held back because they're in a pool of mortgagers and may not be the sole mortgager. Many of them have held back, are now going to step forward realizing, if they don't, the bankruptcy judge may do what they failed to do ahead of time.

Senator Dodd.

SEN. DODD: Well, listen, congratulations to Senator Dick Durbin, Chuck Schumer, who have been leaders on this issue. And Congressman, appreciate your leadership as well on the effort.

This is not unprecedented. In fact, examples in agriculture and farm credit areas; a very similar proposal was used at a time that family farms were in jeopardy of being foreclosed. So we're not breaking new ground here.

And as Senator Durbin has pointed out, I don't know how you can possibly justify excluding vacation homes, boats and the like, from the effects of a bankruptcy proceeding, and not be able to protect a primary residence.

Most Americans do not have vacation homes. Most Americans today in trouble are desperately trying to hold on to their primary residence.

And what we imagine happening here is that we'll avoid the bankruptcy proceedings. In fact, this provision will do exactly what we had hoped would have happened with other ideas when we could not get this provision adopted as part of earlier housing legislation, and that was to create an environment where negotiation would occur. This provision is a shorthand way of doing it, because in the absence of doing it, you do end up in a bankruptcy proceeding, and everybody loses -- the lending institution and, obviously, the homeowner.

So by creating this proposal, we, I think, will achieve that which we tried to achieve through other means that have not, unfortunately, been as successful as those of us who authored them tried. But this, I think, will cut through a lot of that.

And if you're looking at a way to get to the bottom of the economic problems in our country, this is the cause of our economic problems. It is the housing foreclosure problem. We've got to address that.

This idea here, which Citi has embraced -- and I commend them -- and by the way, they deserve commendation. They were the ones that banned arbitrary -- binding arbitration dealing with mandatory programs in the past. It was a tremendous step forward. The civil rights community -- I know Wade Henderson was very involved as well, in bringing people together. So there are a lot of people that helped with all of this.

But Dick Durbin and Chuck, of course, have been advocating this for the last two years. And unfortunately, we couldn't get it, for all the reasons that Dick knows painfully, with the other side just flat-out opposed to this. Citi has broken through now, and we urge these other lending institutions to support this. And my hope would be that we'd make this a part of the stimulus package.

SEN. DURBIN: Chuck?

SEN. DODD: Chuck?

SEN. SCHUMER: Thank you. And this is a -- this is a breakthrough day. Bottom line is, we've been stymied because the banking industry opposed this simple provision, which is key to getting a floor to the housing market.

There is no way -- you need a carrot and a stick. The carrot are many of the proposals that particularly Senator Dodd and Congressman Frank have made. But you need the stick to force some of those tranche-holders who don't want to come to the table to come. And the only stick available is bankruptcy. So I want to salute Senator Durbin for being the leader on this issue for several years.

Let me tell you what happened.

A few months ago, I started calling some of the major banks, and said, "It makes no sense for you and the banking industry to continue to oppose this provision, when it's at the root cause of the housing market being in the terrible shape it is, and it's one of the major things preventing us from finding a floor to the housing market."

And I've talked and talked and talked to them. And they have a different situation, of course, than many of the little banks, because they are suffering from this problem in many, many ways.

Last week, I spoke to Lew Kaden, the general counsel at Citigroup, and he said, "I think we can come to an agreement." And the agreement has now been reached. And Citibank does, as both Chris and Dick said, deserve tremendous, tremendous plaudits.

My office has now been called by heads of most of the major banks in the country, saying they want to hop onboard. And I'm now hopeful that we can get the banking industry to be supportive of this provision -- at the very least, not oppose it. Because when we last brought it up to the floor, what did you have, 30? Somewhere in the 30s in terms of votes.

But the fact that Citigroup, and soon other major institutions, will start supporting this provision is a breakthrough, because no one's labored harder than Chris to put together a proposal that would help us deal with foreclosures. But we know -- and Dick's been the leader on this part -- that without the stick -- not just the carrot -- but without the stick, we were never going to accomplish anything.

And I am so glad that the banks are seeing the light. I'm so glad that they understand that it's in their interest as well as the economy's interest to get this provision passed. And last night I spoke to Kaden again. He said they were ready to do it. They wanted a few conditions. The most important one was that it be retro; it not be prospective, it not affect future mortgages. And of course, there are so few future mortgages being issued -- almost none of them subprime or Alt-A -- that we're not worried about the future, but we had to do things in the past.

So I think this is a red-letter day. And this should pave the way, hopefully, to getting this in the stimulus bill, which we have all been fighting for, and then finally finding a floor to the housing market and seeing the economy turn around.

You're not going to get anywhere until you find a floor to the housing market. You're not going to find a floor to the housing market till you pass this bankruptcy provision.

SEN. DURBIN: Thanks, Chuck.

REP. MILLER: Thank you. Several House members have also been very involved in this effort. Chairman Conyers, of course, the Judiciary Committee; Linda Sanchez, who began the effort two years ago when she was chairman of the subcommittee that had jurisdiction of bankruptcy. She's now moved on to the Ways and Means committee. Chairman Frank, the Financial Services Committee. And I've been working on the issue for a couple of years too.

I assume that this is a breakthrough. It doesn't mean all God's children are for this bill now, but it is enough of a breakthrough that we will get immediate relief. I introduced legislation this week that did not apply except to existing mortgages. I don't necessarily agree with the policy of that. I think it should apply to all mortgages for all time. But politics is the art of the possible, and with 8 (million) to 10 million families facing losing their homes to foreclosure in the next four years, we need to do what is possible and we need to do it quickly.

Senator Schumer is right. Congress has offered carrot after carrot. And until we bring a stick to the task, we are not going to get the modifications that we need to avoid the continued collapse of home values, the continued foreclosure epidemic, the effect on the whole economy. The effect on the families losing their homes to foreclosure is catastrophic. They lose their membership in the middle class probably forever.

But the effect on the entire economy is drastic too. Almost every middle-class homeowner is seeing their life savings evaporate with the collapse of their home value. Until we get a handle on the foreclosure crisis, we are not going to get any control of the collapse of home values. Until we get control of the collapse of home values, we are not going to stop the slide of the economy.

So I'm pleased to be here representing many worthy members of the House.

SEN. DURBIN: And there are many worthy members.

SEN. SCHUMER: Including --

Q (Off mike) -- questions?

SEN. DURBIN: Yes.

Q (Off mike) -- stimulus package. Do you believe there's any other measures for the housing market being included in --

SEN. DURBIN (?): I'm going to leave that to Senator Dodd. Chairman Dodd.

SEN. DODD: Yeah. Specifically, probably not. You mean things like the predatory lending stuff, credit cards?

Q Senator Conrad yesterday talked about buyers credit -- (off mike).

SEN. DODD: Well, there's some possibility of that. We're talking about that as well. We met with home builders yesterday -- I'm sure my colleagues did, as well -- from the various states, and they make a strong case, obviously, about what that does, stimulates growth. Obviously, when someone buys a home, they buy rugs and furniture and all of these other activities that could really help get our economy moving again.

So I'm -- I'm not endorsing the idea yet. I know the administration has some concerns about it, because it doesn't deal specifically -- that's new homes we're talking about. It doesn't address the issue of, obviously, existing mortgages. Just to add some numbers here -- and I know you've heard us say these over and over again, but they deserve being repeated -- 9,018 mortgages, on average, every day are going to foreclosure in the country.

And those numbers will mushroom, as you've heard the congressman mention, in the coming year, with as many at risk as there are.

So while this proposal doesn't really address the present problem of foreclosure, it does address the issue of economic growth, and has some appeal.

SEN. SCHUMER: Right. One other thing I'd just add. We had our --

Q (Off mike) -- closer to the mike?

SEN. SCHUMER: Sorry. We had our first bipartisan meeting of the Finance Committee, and there was broad support for doing something on the tax side to aid housing. What it was, there were different discussions, but I am hopeful we can put some things in housing, not only on the banking side, but on the finance side in terms of some kind of tax breaks.

And the basic view is you're going to have to deal with existing homes, not only new homes, because no one's going to build new homes until you find a bottom to the existing home-foreclosure market.

Q Senator Schumer, you said that you spoke with several of the other big banks.

SEN. SCHUMER: Yes.

Q Can you give us any indication about how many other banks you expect to get on this? And do you need their support to get this bill through?

SEN. SCHUMER: Well, first, a good number of the banks have called. Citigroup's action has broken the dam.

Q Can you tell us who's called?

SEN. SCHUMER: No. I'll wait till -- let them make their announcement in whichever way they'd like.

But I've also talked to some of the banking -- and I know Senator Dodd's -- you have as well -- to some of the banking groups and said, "Hey, you should go along with this as well." And they are open to it. And so if we get the support -- the hope is that if we get the support of the banking industry to do this, then many of those who opposed Senator Durbin's bill will now support it. At least if we could get it in the stimulus, they wouldn't want to say, "We're not supporting the stimulus if it's in." That's really the hope.

Q Do you need their support to get it through?

SEN. SCHUMER: Well, last time we got 30-something votes, so we certainly need to get more support from somewhere.

SEN. DODD: It should be pointed out, you know, too, as well, that Senator Durbin -- he can obviously speak to this himself -- that Senator Durbin -- the original proposal, or at least one of the original proposals, actually had this provision. You were -- it was never intended to be a(n) onerous provision. And while I agree with the congressman, you can make a strong case that this provision ought to apply across the board. Early on there were major efforts to make this an accommodation. And I'd just say, for whatever it's worth, locally I met with my community bankers in Connecticut last week, and they're not excited about a cram-down provision.

(Cell phone rings.)

SEN. SCHUMER: It's one of the banks.

SEN. DODD: But they recognize that -- they recognize that there's a -- it makes a lot of sense to come up with some formulation, such as the -- Senator Durbin has articulated.

Q Senator, you said that you'd talked to -- you know, you talked to the banks, and you said the hope is that it'll get some of the people who opposed this to now support it. Have you talked to anybody who has opposed this, you know, with regards to these -- (off mike) -- Republicans?

SEN. DURBIN: No. No, I haven't. And as a matter of fact, this has just come through today. So we have some work to do, but now I think we can at least approach our colleagues and say the circumstances have changed.

Before this, the reason why we got so few votes is we had the opposition of the Mortgage Bankers Association and virtually all of the financial institutions, with the exception of credit unions. I believe they supported our position. So now there's a change.

And I think it reflects not just the skill of Chuck and Chris and others in reaching out to these institutions, but they've had a chance to reflect on what's happened. And what we have proposed, the voluntary approaches, just haven't created the kind of activity we needed. I don't know how many have come through on the HOPE program now, but it's --

SEN. DODD: Not many.

SEN. DURBIN: Not many. It's in the hundreds, isn't it?

SEN. DODD: Yes.

SEN. SCHUMER: Right.

SEN. DURBIN: In the hundreds. And we'd hoped it would be in the hundreds of thousands, you know. And so there's clearly a need to try something new, and I think this new approach may be appealing.

I called one of the financial institutions myself -- Chuck and I talked about them earlier today -- and gave them a heads-up that this was likely to occur. And they were going to check in, go to the top levels and see if they could join us. So there's a possibility that we could have more onboard, and that will help us get some more votes.

SEN. SCHUMER: Yeah, it made -- the irony is, certainly for the larger financial institutions that were in real trouble and held all these mortgage-backed securities, it made no sense for them to be against this provision; and yet, they went along. And when I called them last summer for the first time and said, "Why are you opposed to this?" they sort of said, "Well, well --" and I part of it I think was solidarity purposes, you know, since a lot of the smaller banks in the industry were strongly against it; that they would sort of go along.

But what broke the dam here, aside from Citibank's willingness to step forward, was the fact that they realized that being against this provision is hurting the whole financial system and the economy. This provision is really at the fulcrum in many, many ways.

And so, in answer to your question, I think the same thing that some of the banks are now seeing, our colleagues will see as well. And that's why we have great hope we can get this done.

SEN. DODD: One last question?

Q If it turns out that there is serious opposition to this and that it would slow down the stimulus -- (off mike)?

SEN. DURBIN: I don't want to -- this stimulus has to pass on a timely basis. I think to ignore the mortgage-foreclosure issue is really to omit one of the major elements that shows weakness in our economy.

And I hope that we can prevail on the administration, with this help, to include it.

Q Senator Schumer, since you brought up the Financial Committee meeting today, what happened in terms of -- for the overall stimulus package? I understand that Grassley was in opposition to the tax credit -- (inaudible) --

SEN. SCHUMER: Well, look, I'm not going to get into the details. There was a lot of back and forth. But I think there was a general view that we had to do something. Even our more conservative Republican colleagues felt we had to get something done.

Q Good. Thank you.

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