Helping Families Save Their Homes Act Of 2009

Floor Speech

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Mr. MERKLEY. Mr. President, I rise today in strong support of the bankruptcy lifeline being offered by the senior Senator from Illinois. This bankruptcy lifeline is at the core of the housing bill passed by the House of Representatives and now under debate today in the Senate.

In the last few years, millions of families were led into unsustainable home mortgages that pushed our country into an unprecedented economic crisis. With the collapse of the housing market, many are trapped in mortgages with unbearable interest rates and principal significantly higher than market values.

No one wants to walk away from the home they purchased, with neighbors they like, a school their children are doing well in, a town they feel comfortable in, but many cannot afford to pay under the terms of the mortgage they currently hold.

I have already spoken on this floor about the need to ban deceptive practices in mortgage brokering, practices that steer unknowing customers into complicated and expensive mortgages. A ban on steering payments and prepayment penalties would go a long way toward ensuring that we do not get into this situation again.

But right now we are confronted with what to do about those who already put their life savings on the line to attain a slice of the American dream and who are on the verge of seeing that dream shattered.

Unfortunately, we are now in the midst of a recession--there is little prospect of housing prices returning to their bubble levels for many years, and almost 50,000 Americans are losing their homes every week to foreclosure. This is a sad and destructive phenomenon. Foreclosure tears apart neighborhoods and destroys family savings. It also has proven to have a devastating effect on our financial system.

In fact, subprime foreclosures are, as we all know, the primary reason our banks have been hemorrhaging money. The billions in write-downs our banks have taken and the billions of taxpayer monies our government has placed into them is due to the collapse of the housing market and the decline in the value of subprime--and now prime--residential mortgage-backed securities. All the TARP money in the world will do little for the banks unless and until we stabilize housing.

Fortunately, we have begun to get on the right path with housing. The Obama administration's Making Home Affordable plan takes a commonsense approach of lower a borrower's monthly payments. Similarly, the Hope for Homeowners Act, with a few fixes, has great potential to help. But neither plan has the ability to take on the major problem still outstanding in the housing market--underwater mortgages. Senator DURBIN's amendment before us today tackles the problem head-on.

What does this amendment do? In practice, its main use will be to force loan servicers to sit down and genuinely negotiate a reasonable mortgage adjustment. My office gets calls every day from constituents in Oregon who can't get a response from their lender or loan servicer. One constituent called her bank 13 times and never was able to talk to the right person. Sadly, she, like so many others, ultimately lost her home.

The Obama plan will improve the situation by offering a number of carrots to lenders and servicers. But we also need to hold out the possibility, when servicers don't respond, of providing a lifeline opportunity.

My colleagues are all familiar with the program ``Who Wants to be a Millionaire?'' When there is no ability to answer the question, there is a lifeline. In this case, when there is no ability to connect with the servicer to have a conversation about a win-win solution--a solution that is right for the homeowner because they are able to stay in their home, a solution that is right for the mortgage owner because the mortgage continues to be paid, albeit at somewhat lower rates--it is still right because the mortgage owner doesn't benefit from foreclosure if they only get 50 cents on the dollar. This is a win-win win because investors affected by the Federal financial circumstances find an improved situation when fewer homes go into foreclosure. It is a win for the community because we don't have an empty house on the block driving prices down further. We have an opportunity that is right for the community and for the mortgage owner and for the homeowner and for the economy. That opportunity is before us today in this amendment.

Certainly, even with adoption of this amendment, some families will need to enter bankruptcy, which is not an outcome we desire for any family but one that some may have to consider. Remember that this bankruptcy power is not extraordinary. A Federal bankruptcy judge already has the power to modify debt on a vacation home, an investment property, a credit card, a car loan, even a yacht. Why can't the court make any modification to a family's primary assets, the important piece of the American dream known as home ownership? I can think of no good reason.

Some have argued that allowing judicial modification to mortgages on a primary residence could increase interest rates on future home loans, perhaps by as much as 2 percent. But does this stand up to examination? After the current bankruptcy court system was set up in the 1970s, some courts interpreted the Bankruptcy Code to give them authority over mortgages on primary residences. This divergence of practice went on until the early 1990s.

Thus, we have a living test case. Studies have been done examining the interest rates in both types of districts--those that allowed bankruptcy modification and those that did not--and found no difference in the interest rates. Even if they had, the amendment before us today would not present this problem because, in the course of conversation, in the course of working out an agreement, only loans originated before January 1, 2009, are eligible for bankruptcy modification, only existing loans, not loans going forward. This primary concern that has been raised has no merit.

Let me emphasize, again, that reductions in principal negotiated in bankruptcy court will be good for the banking system. Credit Suisse estimates that 9 million families may lose their homes in the next 4 years. Foreclosure is a disaster for the family. Large numbers of foreclosures destroy home values across neighborhoods. But from the lender's standpoint, foreclosure means they are likely to net only 50 or so cents on the dollar. In the case of any homeowner with a reliable income--and chapter 13 bankruptcy is only for people with a continuing source of income--it is much better for the lender if the homeowner remains in their home and makes a monthly payment, even if it is at a somewhat reduced rate, rather than turning the keys and putting the property into foreclosure.

A couple of additional points: This proposal will not cost the taxpayer one dollar, nor will it overwhelm the Federal bankruptcy courts. The same claims were made in 2005 prior to passage of the Bankruptcy Reform Act. But in fact, the courts have handled the increase in caseload quite successfully. My office has talked with bankruptcy judges, attorneys, academics across the country. All are confident that the court system can handle any increase in caseload that would result from this legislation.

This legislation is important to Oregon. It is important to the citizens in my State. According to data compiled by Moody's Economy and the Center for Responsible Lending, without this bankruptcy lifeline, over 15,000 families will lose their homes to foreclosure. I imagine the situation is quite similar in every State. The cost of these foreclosures has been magnified several times over, costing those citizens whose homes neighbor the foreclosed sites nearly $1.5 billion in equity. That is in Oregon alone. Will those neighbors then be underwater with their homes worth less than what they owe on their house, and how long will this cycle continue?

The bankruptcy lifeline amendment offers us a win-win solution. Forcing real mortgage modifications will keep Americans in their home, arrest the decline in property prices, and stabilize the balance sheets of banks.

I urge colleagues, in the strongest possible terms, to provide this win-win opportunity. We have done so much to help Wall Street. It is time to help working families across America, keeping them in their homes and stabilizing the financial system.

I yield the floor.

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