Helping Families Save Their Homes Act of 2009

Floor Speech

HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009 -- (Senate - April 30, 2009)

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Mr. SCHUMER. Mr. President, I compliment my colleague from Oregon on some excellent remarks. I thank him for being so steadfast in working toward this issue. He has spoken up many times at meetings and caucuses about it.

I rise in support of this amendment that would alter the Bankruptcy Code to allow bankruptcy judges to modify primary home mortgages. By now we are all familiar with the problems. Too many people borrowed too much money from too many banks that were too willing to lend. There is plenty of blame to go around. Now millions of American families are facing foreclosure over the next few years as a result of exotic mortgage products such as 2-28s, pay-option ARMs, and interest-only loans that disguise the full cost of home ownership. We have been pushing banks to do loan modifications for more than 2 years now and, frankly, we don't have much to show for it.

While I am optimistic the administration's plan will produce a significant improvement in modification efforts, it is also certain there will be intransigent servicers and investors who will try to block the process, to squeeze every last cent out of a home, even if that means it is costly for their family, their community, and the country at large.

We have offered lenders and servicers plenty of carrots, but it is unfortunately clear we also need a stick. The reason the programs in the past have largely not worked is it was just carrots and no stick. We need both. That is what the legislation gives us, leverage to push servicers, lenders, and investors to act in the best interests of the economy as a whole.

This amendment to the bankruptcy law is so important because of the changes the mortgage industry has undergone in the past few decades. It used to be that when one wanted a mortgage, they would go to their local bank where they would lend the money and collect payments for 30 years. That meant if one ran into trouble, they had a familiar friendly face to turn to, someone who knew them and their family and who had an interest in helping work out the mortgage payments so they could stay in the home. It also meant the bank had an interest; one entity had an interest in the whole mortgage. It wasn't chopped up in so many pieces. That is what has happened.

Over the past two decades, with the growth of securitization, it has all changed because the mortgage has been divided into pieces, sold off to investors around the world. They are often difficult to identify and impossible to contact. Their primary concern is squeezing every last cent out of the mortgage loan, whatever the impact on families, on homeowners. That means if the best outcome for even one of those investors is foreclosure, a homeowner is not likely to get the help he or she needs to stay in their home.

One other point that is vital: It may be that there are 40 investors who each have a piece of the mortgage. It may be that 39 of them have an interest in a loan modification. But if that one intransigent investor, who probably got the highest rate of interest because he or she took the most risk, says no, the whole process comes to a halt--not only bad for the poor homeowner but bad for the other 39 investors. It is bad, most of all, for the economy as a whole. It is not that one intransigent investor might say: Look, I will lose all my money if there is a loan modification. If I sit and wait for 5 years, then maybe housing prices will come up to where they should be and I will get my money back. In the meanwhile, the economy goes down the drain for everyone, because the more foreclosures there are, the lower housing prices get. The lower housing prices get, the less likely banks are to lend. The less likely banks are to lend, the less money is in the economy. The recession gets worse and worse and worse.

It is not only a problem for the homeowner when there is an intransigent bondholder who will not yield; it is a problem for the other investors who will lose money in foreclosure.

It is a problem for the neighbors of the homeowner whose property values are going to decline and for the country as a whole since our housing markets are already inundated by a glut of unsold homes, driving down home prices and destabilizing the financial sector.

How do you get that intransigent bondholder to the table? Well, there is a contract. We cannot break a contract by law. But the one place in the U.S. Constitution where a contract can be modified is bankruptcy court. Bankruptcy courts are the only constitutional way to overcome the securitization contracts and restore some power to the homeowner himself or herself.

Moody's Economy.com estimates without this amendment 1.7 million loan modifications that would have happened will not occur. These figures show that 1.25 million homeowners whose servicers are unwilling or unable to help them will not have the protection of the bankruptcy courts, and almost half a million homeowners who would have gotten modification offers will not because servicers or investors will calculate that a foreclosure is worth more to them than a modification.

The proposal is the result of weeks and weeks of talks that never yielded compromise that we hoped for. I see my colleague from the State of Illinois, Senator Durbin, in the Chamber, who worked so long and so hard on this
issue and deserves all of our thanks. He was in the middle of trying to get this done. Senator Dodd and myself tried to help but to no avail. It is clear that parts of the mortgage industry were never interested in meeting us halfway. As the negotiations went forward, they moved the goalposts back and back and back. And when concessions were made that were well beyond what anyone thought, they walked away because they never wanted to deal.

Hindsight is wonderful. It is unclear if those who entered the discussion--at least some of them--ever entered in good faith. But the industry stakeholders, who obviously have the most to lose, ought not hold total sway. Just because they walked away from the table does not mean we cannot vote our conscience on a proposal that would help preserve the American dream for millions of families and get our economy going again.

What makes me so eager for this proposal to pass, and why I worked long and hard, is that as much as I want to help individual homeowners--and, believe me, I do--our economy is at risk. Millions who might rent or have paid their mortgage could lose their jobs, and it all comes down to this proposal. Because if we decrease foreclosures, we will find a floor to the home market, which will then allow banks to lend, which will then get our economy going. It is like the knee bone; to the thigh bone; to the hip bone. Foreclosures are connected to the housing market; the housing market is connected to the health of banks; the health of banks is connected to the economy.

So when President Obama announced his foreclosure prevention plan, it included lots of lucrative incentives to lure banks to participate, but it called for some tough medicine: this bankruptcy proposal. And both are needed. We need carrots and sticks. The President's housing plan will not be as effective if parts of it are sacrificed for political expediency. Loan servicers should not get to accept the parts of the President's plan they like and reject others. That was never the deal.

To reject this proposal is to provide only sweeteners and no stick to get banks, servicers, and investors to modify troubled loans. The bottom line is fewer homes will be saved for American families. The defeat of this amendment would be a sad day for homeowners, for the housing market, for financial institutions, and for the overall economy. Allowing that to happen is unconscionable.

I urge my colleagues to adopt this amendment. We have an opportunity to make a major dent in the housing crisis and prevent further declines in home prices.

Let's understand, once again, the housing crisis remains at the core of our economic problems. As long as home prices continue to decline--and without this legislation they are far more likely to--our economy remains at grave risk of further contraction. We cannot let this opportunity slip by.

I yield the floor.

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