Executive Session
Floor Speech
BREAK IN TRANSCRIPT
Mr. DURBIN. Mr. President, you are from the State of Ohio; I am from the State of Illinois. We face similar circumstances when it comes to mortgage foreclosures. Lots of the best and strongest cities in my State, large and small, are being inundated with mortgage foreclosures.
Now, this started off with this predatory trap where a lot of people were lured into mortgages they could not afford. But there was a mortgage broker telling them: It will all work out. The price of your home is going to go up, and it is going to be a good source for you to borrow money in the future. So stretch a little. Trust me. You can make these payments, and a year from now, or when the mortgage readjusts, everything is going to be just fine.
It did not work that way. Some people went into these mortgage agreements and negotiations without the equipment to understand what they were getting into.
I am a lawyer by training. I have been through a lot of closings for real estate. We all know what it is about. They sit you in a room, your wife by your side, and put a stack of papers in front of you. They start turning the corners, talking faster than any salesman you have ever run into, telling you: Do not worry about this one, sign it. Do not worry about this one, sign it. It is routine, required by Federal law--on and on and on. Pretty soon, with your hand weary at the end of half an hour or so, you have signed 30 or 40 documents. They hand you the paper and say: The first payment is due in 60 days. I know you are going to love this place.
That is what most closings are all about. Not many lawyers and very few purchasers stop them and say: I want to read this document. Can you tell me what paragraph 6 means? Are you sure I am understanding everything this means?
Most of the time, the average people in America are at the mercy of the folks sitting around them. They are bankers, they are lawyers, real estate agents. They are at their mercy and, unfortunately, under some circumstances, some people were misled into mortgage arrangements which were just plain wrong.
For the longest time we went through something called no-doc mortgages. Do you know what that means? No documentation.
How much money do you make?
Oh, I don't know, $50,000.
How much debt do you have?
Oh, I don't know, maybe $10,000.
You qualify.
Do you need some documentation?
No, we have to move this through fast. We need to capture an interest rate.
This sort of thing was the height of irresponsibility. At the end of the day, people ended up with these subprime mortgages for homes they, frankly, could not afford, and the day quickly came when this house of cards literally collapsed, and mortgages started being foreclosed across America.
Well, it is not just your neighbor's problem when a house is foreclosed upon. It is your problem too. Even if you are making your mortgage payment, that neighbor's misfortune just affected the value of the home you hold near and dear. That neighbor's inability or failure to pay the mortgage payment is going to affect the value of your home where you just made the mortgage payment and continue to. That is the reality.
The Chicago Sun Times recently reported on the situation of Chris and Marcia Parker. They are in the south suburb of Thornton just outside Chicago. They live in a small brick home that Marcia's father built in the early 1950s. She grew up in the house. The couple moved back home to take care of her elderly mother.
At the time they took out a mortgage to pay for a new roof and a new furnace. They ran a small business, but the business failed, causing them to file for bankruptcy. They both landed new jobs with the same company, but were then laid off at the same time last July because of the recession.
Chris, the husband, found a new job; Marcia has not. Now they are falling behind on their mortgage. They put up for sale the house Marcia's father built. They could not find a buyer. They have now received a foreclosure notice. The foreclosure could happen as early as a week from now. They are trying to reach the lender and work out an arrangement to stay in the home her parents built. Worse, they cannot find a place to rent because their previous bankruptcy, based on the failing small business, they have no idea where they are going to live and whether they will lose their home.
Does this sound like a deadbeat couple to you? It does not to me. It sounds like a couple that has fallen on misfortune, tried their best, tried to get back on their feet, and they keep stumbling and falling again despite their best efforts. This family was not reckless. They were not speculators in the market. We are talking about a house her parents built. They did not buy too much house.
This is a story of a family who has tried to do the right thing and is facing the very real possibility of losing their family home and having nowhere to turn. It is happening over and over again.
In Chicago, there were nearly 20,000 homes last year which entered the foreclosure process. This map tells the story. It looks like this great city of Chicago with the measles. Well, it turns out to be this great city of Chicago with a reflection on the 2008 foreclosure filings.
Get down here around Midway Airport where I travel a lot--I go to O'Hare a lot, too, I might add--and take a look at what is going on in these neighborhoods, in these plots. I took a look at one specific Zip Code right around Midway Airport, and I looked at it visually closely. I could only find five blocks in that Zip Code that did not have at least one home in mortgage foreclosure.
Now, if you traveled to these homes, you might notice them when you are flying in and out of the city. These are neat little brick bungalow homes, not lavish homes, basic two- and three-bedroom homes where folks spend the extra dollars to finish the basement, put in an above-ground pool in the backyard, or try to put something in the attic where the kids can sleep over if they want to. These are basic middle-class family homes, and folks are losing them right and left.
Now, 2 weeks ago I went to Albany Park. That is on the north side of the city of Chicago--again, neighborhood after neighborhood of neat little family homes where people care, where the homes are well taken care of, little garden plots and flowers and decorative efforts by them to make sure their home looks special. Smack dab in the middle of that area was a building, a three-story building that had been, I guess, developed originally as a condo. When they could not sell the condos, they developed it into apartments, and then mortgage foreclosure. That is now boarded up. It has been vandalized by gangs that go in and rip out the copper piping and everything they can get their hands on. The drug gangs hang out there.
I stood around that neighborhood with the neighbors, many of whom were elderly people, folks who have accents because they came to this country and worked hard and now want to retire. They looked at me and said: Senator, what are you going to do about this? This mortgage foreclosure on our block is changing our lives. We put all of our lives in that home, and now this monstrosity of a foreclosure is destroying our property value.
Well, I have been involved in an effort for 2 years to do something about this, 2 straight years. I am still trying. And here is what it is. If you go into bankruptcy, if you have more debts than you have assets, the court right now can take a look at your debts. In some instances, they can try to restructure the debt so you can pay it off.
If you have a vacation home in Florida, the bankruptcy judge can say: Well, rather than foreclose your vacation home in Florida, we think you have enough income coming in that we will work with the lender and try to make the mortgage terms work. If you own a farm, we can work with the lender to make the mortgage terms work. If you own a ranch, same situation. Same thing on that boat, on that car, on that motorcycle; we can do it--with one exception.
Do you know what the exception is? Your private residence. Your personal home. The bankruptcy court is prohibited by law from looking at that mortgage and saving your home. They can save your vacation condo, your ranch, your farm, all of these other things. They cannot save your home.
It makes no sense. If your home means as much to you as it does to my family and most families, you would think that would be a high priority. Who resists this? The banks do and the mortgage bankers do. They have given it this nice, negative name: cram-down. We are going to let the bankruptcy court cram down that mortgage on your home.
Boy, they sure did not use cram-down when it came to vacation homes or farms or ranches, but now they want to stop it. Why? Because many of them do not want to negotiate a new mortgage. It makes no sense.
A bank, when a mortgage goes into foreclosure, will lose at least $50,000 on that mortgage foreclosure--at least, with legal fees and other expenses. And in 99 percent of the cases in mortgage foreclosure, the house ends up on the inventory of the bank. That banker who sits behind the desk at your local bank now has to worry about who is going to cut the grass, who is going to drive by to make sure the home is not being vandalized, how in the world they are going to sell it.
What we are trying to do is set up a process so these homes facing foreclosure, thousands and thousands of homes in the city of Chicago which I am honored to represent, and millions of people across America have a fighting chance.
Now, I have made concessions. I have worked on compromises over the 2 years. Some of the financial institutions are finally saying: All right, we will talk to you. When I started working on this problem 2 years ago, they predicted as many as 2 million families in America could lose their homes. They predicted 2 million. We were told by the lending industry that those estimates were grossly exaggerated: 2 years ago, 2 million.
Goldman Sachs now estimates as many as 13 million homes could be lost to foreclosure in the next 5 years. That is one out of every four private residences in America lost to foreclosure, a foreclosed home on every block in every city in every State in America, on average. That is the reality and the truth of this crisis.
Last year when I called up this bill, they said: Durbin, there you go again. You are exaggerating it. It is not going to be that bad. We will take care of the problem. Well, we gave them all of the help to take care of it, the voluntary programs, and at the end of the day, where are we? We are in a desperate position in this country where we have to step up and finally break this cycle of mortgage foreclosures.
Both sides have to give. I have been willing to compromise, some of the banking institutions have been, to make sure people go into the bank before they go into bankruptcy court, to give them a chance to work out the terms of a mortgage they can afford so they can stay in their homes and neighborhoods can be stabilized.
That is why I fully support President Obama's plan to help 3 to 4 million homeowners save their homes by modifying their mortgages to make them more affordable. The plan creates incentives that we need so that banks will finally do what has not been done for 2 years: aggressively modify loans so foreclosures can be avoided. That is in the best interests of homeowners and banks.
But this plan is voluntary. Voluntary plans have successively failed. Every time we have said to the financial institutions: We will leave it up to you, you decide whether you want to do something, nothing is done of any major consequence. If the lenders don't want to participate in the President's plan or previous plans, they don't have to.
The program pays servicers taxpayer money to offer loan modifications that may not be enough. We need to have at the end the possibility--not the probability but the possibility--that the bankruptcy court will have the last word. That is why the administration has included my plan in their proposal. The President supports my change in the Bankruptcy Code to allow mortgages on primary residences to be modified in bankruptcy just as other debts. If banks don't want judges to modify mortgages for them, they will be far more likely to do it themselves. How would it work? Only families living in the home would qualify. This isn't for speculation. This isn't for that extra condo you bought somewhere in hopes that you could turn a buck. It is your primary residence, the one you live in. Only mortgages for which the foreclosure process has started are eligible. No one who can pay their current mortgage can have a judge change those terms. Judges would be limited in how they can modify the mortgages. They could never create a mortgage that would create a worse result for the bank than foreclosure.
If this bill passes, taxpayers don't lose a buck, and we could have a positive result where many people could win. The mortgages that are modified in bankruptcy will provide far more value to lenders and investors than foreclosure.
Best of all, there is no expense to taxpayers.
This is expensive to taxpayers. Why? Because if the home next door to you goes into foreclosure, the value of your home goes down, property tax revenues go down, and the local unit of government loses the revenue it could receive from those property taxes, for starters.
If you can't buy and sell a home in your neighborhood, do you know what that means to the realtor, to the people who build homes, to those who sell carpeting for new homes, right on down the line?
I will return to the floor next week to talk about this bill. I know opponents hate it. I can't persuade some of them no matter what I do, no matter what concessions I make. But I will not give up. For 2 years, we have been fighting to pass a strong housing bill to turn away this tide of foreclosures in Chicago and across America. I hope that on a bipartisan basis we can do that starting very soon.
I yield the floor.
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