Predatory Mortgages And Foreclosures

Floor Speech

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Mr. ELLISON. Mr. Speaker, what else are these purveyors of confusion supposed to say?

They have had an opportunity to spread deregulation all over. They have declined the opportunity for many years to pass an antipredatory lending bill. They have promoted tax breaks for the wealthiest among us. And now that they have had the opportunity to have a House and a Senate in which their particular caucus was in the majority, they have had a full opportunity to manifest their economic ideas, and what those ideas have come to has been the largest foreclosure crisis since the Great Depression. What these economic ideas that the poor have too much and the rich don't have enough is that we have had serious unemployment spikes higher than any that we have seen since the early eighties, which was the Reagan recession. What we have seen is record lows in consumer confidence.

The fact is you can't expect the people who are purveying confusion regarding the CRA to come clean because then they would have to admit that it is their economic policies that have brought forth the economic malaise that America is in now.

In fact, the Community Reinvestment Act is good economics. The Community Reinvestment Act says that what we are going to do is we are going to ask banks who draw deposits from neighborhoods to also loan to that neighborhood.

The Community Reinvestment Act came about based on statistically documentable evidence of red-lining, which is a process whereby lenders and sometimes insurance companies systematically denied credit to certain communities, particularly low-income and minority communities. Importantly, the Community Reinvestment Act does not prescribe minimum targets nor dictate specific underwriting policies. It doesn't even set goals for lending or investment. Instead, it gives considerable discretion to bank regulators and examiners, and ensures that loans are made in a manner consistent, as you pointed out, Congressman Cleaver, with safe and sound banking practices.

Let me just quote from somebody who ought to know a little bit about banking and the financial markets, and that is Fed Governor Elizabeth Duke. Fed Governor Elizabeth Duke is a person with a Ph.D. in economics who studied these issues, is not known for wild statements, and is essentially a paragon of reliability and stability.

Here is her analysis. She says that the claim that the CRA, the Community Reinvestment Act, caused the current crisis is a ``misperception promulgated by many who either do not know much about the law or don't like it.''

That's what Fed Governor Elizabeth Duke had to say.

Finally, Federal Reserve Chairman Ben Bernanke has indicated, ``Our own experience with the CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that the CRA was at the root of or otherwise contributed to in any substantive way the current mortgage difficulties.''

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Mr. ELLISON. Congressman and Mr. Speaker, let me just point out for our listeners that, today, about 30 percent of all homeowners are underwater. About 30 percent are underwater. That means that the value of their home is lower than the debt owed on their home.

This is a very serious and catastrophic situation and obviously causing a tremendous amount of angst, consternation, fear, and frustration among people across our country. Obviously, when your house is underwater, it might be easier for you to just leave the keys and walk away. We urge people to try to work things out with their lending institution.

But there's no doubting that the American Congress must be attune to the tremendous pain, difficulty, and frustration people are facing. When people are suffering from frustration, sometimes what they need is people who are in leadership to help clarify what is really going on as opposed to people in leadership confusing what is really going on. Confusing the issue is a very dangerous thing to do.

I would submit to you that America that has done so much to overcome racial division and may be one of the only countries in the world to go from a slaveholding society to a society where a person who, based on color, would have been a slave himself but is now President, a person who would have been denied a cup of coffee 50 years before he became sworn in to be President, is President.

This is a tremendous thing and a great thing for America. The credit goes to people of all colors: black, white, red, yellow, brown, everybody. But at times like this, it's important to also not allow the racial progress America has made to slip back by allowing some people to use code language and say that people of color, poor whites, are responsible for the problem.

When people are frustrated, they need answers. When they need answers, they need clarity, not confusion from leaders, not fear-mongering tactics assigning blame that is not there. And I would submit to you that all of us, people of all colors, need to stand together to clarify what is really going on with the CRA because, in my opinion, people who say that the CRA is to blame, Fannie and Freddie are only to blame--of course, they do have some fault on them, but they are not, by any stretch of the imagination, the only one. I think it is very important that we say together as a unified racial community that we will not allow racial stereotyping as it relates to what caused this housing crisis.

In my opinion, saying that it's because of the CRA, knowing that the CRA was designed to promote racial harmony and opportunity, is a way of blaming people of color for the financial crisis. Now we can debate this issue, but I guarantee you, if you were to say, ``What does the CRA do?'' and you say, ``It was in response to redlining, that's why it was passed,'' so the question you might ask, ``Well, you mean so it was to try to stop racism or antidiscrimination?''

And the answer would have to be yes, that is what it is for.

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Mr. ELLISON. So it sounds like, according to Mr. Greenspan, that he is saying that it was this excessive demand for collateralized debt obligations, for the credit default swaps, which a lot of people would take on more risk than they were able to really absorb. These things really accelerated the financial crisis, according to the experts.

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Mr. ELLISON. Certainly. And I just want to raise this issue, if either gentleman would care to comment. While it is obviously true that the CRA did not cause this financial crisis, I hope you don't fault me too much for straying away and talking about what I think did cause the crisis.

And what I think caused the crisis, clearly, when you have a mortgage originator--and many mortgage originators are good, and I thank the gentleman for pointing out that we are not here to indict an entire industry. But we are saying that the bad actors, there was no cop on the beat here for the people who would transgress. That when mortgage originators were given additional money in order to steer a homebuyer who was seeking a mortgage to a higher priced loan, that is the kind of thing that would get people into a whole lot of trouble, particularly when that same mortgage originator would say, ``Oh, we'll just do stated income.''

``Oh, you don't have to verify income.''

``We're just going to underwrite your mortgage during the teaser rate period and not during the entire length of the loan.''

These are the kind of things that got people in trouble. There is one of our colleagues that is fond of saying: Oh, predatory lending, predatory lending. What about predatory borrowing? Have you heard this term before?

Well, predatory borrowing, what happened is that people would get a financial incentive to steer you away from that lower interest rate loan to that higher interest rate loan and keep the cream, yield spread premium. This is what got people steered to the higher priced loans. So that is part of the problem.

The next part of the problem is that when those mortgage originators did that loan, they could sell it on the secondary market where it was almost never scrutinized as whether it was a good loan or bad, that it would just be sucked up and it would be packaged up into a mortgage-backed security. And those mortgage-backed securities would be packaged up into collateralized debt obligations. And some of these loans that were nonperforming, and there were large numbers of them, people would go out and buy insurance or, quote-unquote, insurance on these securities, but they were never required with these swaps to have enough money to cover if in fact the value of the security went down. So when they started going down and people said ``pay me,'' the companies that wrote these swap agreements weren't able to cover; and when they couldn't cover, then some of them started going under.

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