NEW DIRECTION FOR ENERGY INDEPENDENCE, NATIONAL SECURITY, AND CONSUMER PROTECTION ACT AND THE RENEWABLE ENERGY AND ENERGY CONSERVATION TAX ACT OF 2007 -- (Senate - April 03, 2008)
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Mr. KERRY. Mr. President, I thank the distinguished assistant leader for his comments and his leadership in this area. As he may recall, we were together at a meeting at the White House a month and a half, 2 months ago now with the President, with Secretary Paulson, Vice President Cheney, and a small group of Senators there to talk about the stimulus package. As I know he may recall, I raised at that time the housing crisis, saying to the President that the entire cause of everything that was bringing us there to discuss the stimulus was in fact the subprime crisis and that no stimulus package should be passed that didn't in effect stem the tide of foreclosures and address the uncertainties in the marketplace and the lack of confidence. So I know he joins me in expressing regret that not withstanding the nodding heads and comments of affirmation, absolutely nothing happened. Nothing happened.
Sadly, it is not until the Federal Government puts up $400 billion to bail out Bear Stearns and other investment banks that you really get some kind of response from the Federal Government. I am not complaining that they should not have done what they did with respect to Bear Stearns and other investment banks because the implications of their failure could have had a profound impact, spilling down into our economy. But when the pain is trickling up to a Bear Stearns, and finally the administration notices--that very same pain has been felt for over a year now by people being foreclosed on in the economy--it really is an underscoring of the degree to which an administration is out of touch with the real concerns and realities in the life of the American people.
We need to show that commitment, here and now, in passing this foreclosure act to deal with the problem nationally. We need to do it now. It is long overdue. As many as 8,000 foreclosures are occurring daily. Some of these loans we know were absolutely predatory; almost, I believe, criminal. People knowingly went out, knowingly made loans to people they knew were not capable, ultimately, of meeting the adjusted rate mortgages, but because of the benefit to them and the immediate take in terms of the points they would make and the commissions and returns on those transactions, they went ahead and did it. Frankly, some of those came from the very same people who have just been bailed out by the Federal Government.
I commend our majority leader for his efforts to bring this to the Senate floor now and his efforts, together with Senator Dodd, to try to work through this particular legislation. Let me share with my colleagues, last weekend--things have gotten so bad in Boston that Mayor Tom Merino recently opened a war room where city officials are working together on a day-by-day basis to fight the wave of foreclosures that we have seen in recent days.
A few months ago I was in the city of Brockton in Massachusetts and met with the mayor. He said: You have to take a moment and come upstairs and meet with me with these folks who are here, and impromptu we went upstairs and there was a group of people from the community who came together in desperation to try to figure out how they were going to deal with the foreclosures in Brockton. This mayor had already processed some 400 foreclosures in Brockton, and he was staring at an additional 800 or so that were going to come at them.
What happens to a community already struggling to get their economy back on track when they face that kind of wave of foreclosures is, street by street, house by house, as they get boarded up and people leave the homes, the rest of the property values start to go down--the local gas station, the local 7-Eleven, the pharmacy--everybody begins to feel the impact.
But most important, from the mayor's point of view and from the Government's point of view, they begin to see a decline in revenues. The only place mayors can go in any kind of wholesale fashion to deal with a decline of revenues is to cut fire, police, and schools.
There are plenty of communities in America where we have already seen those kinds of reductions, all of which run completely counter to how we build a community and to what we are trying to do in order to restore economic strength in the country.
Just this last weekend I attended, with Mayor Menino, at a high school in Roxbury, in Massachusetts, in Boston, a homeowner foreclosure prevention workshop. I was literally stunned at the numbers of people who had come into this high school on a Sunday afternoon, bringing all their financial records because they had been unable to get hold of a real human being to talk to in order to try to work out a reasonable agreement for what they could pay and be able to stay in their homes.
Rather than face one of those endless phone calls where you press 2 to talk to somebody who will tell you to press 4 who will give you an automated response to press 7 or whatever it is--we have the lenders there. We brought the various lenders there and people were able to go through a screening process and then go back to a room, sit down with the lenders, tell them their predicament, and actually negotiate a refinancing.
I met people that afternoon who were smiling, who said to me: Thank you for getting us together. Now I can stay in my home.
That is all it takes, that kind of effort. I talked to one woman who, together with her husband, is paying $5,000 a month for their home, for their mortgage. They have two mortgages now. They are both working, both of them are working.
But I asked her what her rate was. What are you paying for a rate? She said: Well, I am paying 7.25 percent on one, and I am paying 9.25 percent on the other. Nobody, with the current discount rates in America, is paying those kinds of rates. It is absurd.
I also had the woman next to that particular one who was waiting in line, who, when she heard the 7.25 and 9.25 said: That is nothing. I am paying 13.25 percent on mine. So if we were to renegotiate, according to a fair standard of what the rate is, with what the national interest rates are today, and fixed rates that are available to people, a lot of those folks could stay in their homes, and they can afford to service their mortgage.
What we need do is stop the greed and unbelievable sort of arrogance of some of these companies, some of those people who asked literally to be able to renegotiate: We were told no. I will tell you in a moment about a woman I met in Lawrence, MA, where this predicament is also going on.
The fact is that nationwide, by last year, we all knew that 2.5 million mortgages were already in default. That was 40 percent more than 2 years earlier. And despite a 40-percent increase, there was no response from this administration. Communities across the country are being hit hard. Last year the mortgage foreclosures in Massachusetts alone were up 128 percent, and the foreclosure rates of five Massachusetts metro areas were in the top 100 in this country.
How did we get here? Well, we got here because lenders lowered their standards for lending but did not appropriately plan for the increased risk they incurred when they lowered the standards. They flooded the market with mortgage loans, ignoring the risks to borrowers and to their own bottom line.
As usual, most of these people turn around and expect us to bail them out; in most cases to bail them out first. For some time, some of us here in Congress have been screaming about predatory lending practices. I happen to think it is usury to allow 30 percent rates. A whole bunch of Americans do not know they are actually paying 30 percent rates after a group of penalties on their credit cards.
There are even more Americans, millions of them, who are paying 18 percent. I urge any American to go back and look at what their rate is at the bottom in the fine print on their credit card or ATM statements and they will be shocked by the levels of interest they are paying.
I think these are excessive. These are wrong. Many people I know, all those of us who went to law school, learned about ``buyer beware,'' ``caveat emptor.'' That is one of the first things you learn in law school.
But the fact is, we put standards in place through the years as to what is an unfair practice. We have unfair trade practice laws in many States, and they are simply not being applied. But legislators in this case have backed up and turned a blind eye to what are unfair practices in the marketplace. Now, were there abuses on the other side of the ledger? The answer is: Yes, there were. Some homeowners inflated their income. Some misrepresented themselves to get a bigger home than they could afford, and obviously we are not talking about bailing out people from those kinds of situations. But there is blame enough to go around.
I will tell you what has not been enough to go around, and that is a rapid and appropriate response from the Federal Government in order to deal with this problem. Lenders are now getting help. But homeowners are still struggling. The fact is there are a lot of homeowners out there who have the ability to pay for a mortgage. They cannot carry the increased rates and they cannot necessarily carry the inflated levels that some of them have been put into because of these predatory practices.
Let me give you an example. This week I went to Lawrence, MA and met with homeowners who are facing foreclosure. Approximately 700 homes were foreclosed in Lawrence last year alone. I am told that number is going to rise for this year.
I talked with a woman by the name of Rosa Hernandez, who has four children, works two jobs, one as a nursing assistant at the local nursing home, in order to support her family and to be able to earn enough to own her home. She did everything she could in order to make her house a home. She fixed the roof, she bought a new boiler, she updated the electrical system of her new house, and she did it with this increase in value that the company came and loaned her. After she was hospitalized twice last year she could no longer afford to work two jobs. At the same time her subprime mortgage interest rates went up from 4.5 percent 5 years ago to 7.5 percent. She told me, through a translator, that when she could not make the payments, she went to her lender. Her lender refused to make loan modifications that would allow her to stay in her home. Her lender told her they were going to devalue her home down to about $99,000. I think she had a total of $220,000 in the home. They are going to devalue it to $99,000 and put it on the market and sell it. She said: I can afford to pay $99,000. Let me stay in it for that. They refused to let her stay in, even though she could service that payment with the job she has with a family of four, stay in her home. They are prepared to kick her out and then put it on the market and sell it to someone else for the same price. That is disgraceful. That is disgusting. And that is the kind of unregulated practice that is taking place out there because people have walked away from any sense of common decency and responsibility.
The fact is that thousands of families such as hers have been through the same kind of predicament where they are forced to start all over again. Each time a house is foreclosed on, a family's economic dream lies in tatters. But it is not only the family that faces the foreclosure that suffers; the entire community suffers. I have talked to police officers who tell me about the increased work they have now to try to patrol by houses that they know are abandoned and boarded up. The property values of entire streets and communities start to drop, which affects the entire ability of that community to be able to function. As I described earlier, crime rates go up, neighborhoods get torn apart, schools are disrupted because when the family gets kicked out, kids are yanked out of the classroom and you end up with a complete disruption to the school system.
According to the census, by late 2007 a higher percentage of houses in the Northeast sat vacant than at any time in the last 50 years, probably since the Great Depression.
So today we are debating the Foreclosure Act of 2008. This has the opportunity to be able to deal with this crisis. It reflects a bipartisan compromise. It is a good first step toward addressing this crisis. It includes a provision, and I thank Senator Smith from Oregon for his long participation with me in this effort as a member of the Finance Committee. We both passed an amendment in the Finance Committee to the stimulus package. We had hoped this would have been included in the stimulus package a few months ago so this good could have begun to take hold so that families who have been foreclosed on in the last few months would not have been. Regrettably it did not happen. But we are here now.
I am appreciative of him and his efforts to help include that in the bill to provide an additional $10 billion. We originally sought $15 billion of tax-exempt private activity bonds that finance our housing agencies. What the housing agencies would do with this money is take the proceeds from the bonds and use them directly to refinance subprime loans, provide mortgages for first-time home buyers, for multifamily rental housing.
In the case of Massachusetts, that would mean about $211 million of targeted mortgage relief to the homeowners of our State. Similarly, every State in the country would benefit from this provision. I thank Chairman Baucus and Senator Dodd for their efforts to include this provision in the final bill because of what it can do to help struggling families.
In 2006, State and local governments financed 120,000 new homes with mortgage revenue bonds. With the additional $10 billion in funds, States and localities can equal that amount and finance approximately 80,000 more home loans. According to the National Association of Home Builders, every mortgage revenue bond new home loan produces almost two full-time jobs, $75,000 in additional wages and salaries, $41,000 in new Federal, State, and local revenues. Each new home then results in an average of about $3,700 that gets spent by the new occupants on appliances, furnishings, property alterations, all of which provide a real shot in the arm to our economy.
The reason this mortgage revenue bond proposal is so important is that to many lower income families, they are having difficulty refinancing their existing mortgages. This additional funding makes it easier for families facing foreclosure. It will make it easier for first-time home buyers to buy a home, which means that the glut in the marketplace today of all of those homes that have already been foreclosed will finally find a group of people because of these bonds who will be able to take those houses off the market and become part of the community.
The goal is simple. We want to provide assistance to those who need it most. The extra $10 billion for this program is a proven way to help Rosa Hernandez or others be able to stay in their homes. I might add also, before I close and cede the floor to my colleague, there is in this bill also $4 billion for the community development block grant, which a number of us have advocated strongly for, that will also help local communities to deal with the effects of the housing crisis.
As we all know, the community development block grant is the only real flexibility mayors get in dealing with crises in their community. So I am delighted that is here and that we can help local governments be able to deal with this crisis.
Finally, there is a provision I fought for in this legislation that I am pleased is in it, which is the proposal I put forward to address the foreclosure concerns of our returning veterans. Those who have served our country in Iraq and Afghanistan should never come home to a home that is in danger of foreclosure. But some are. You have a lot of National Guard folks who are doing their second or third deployment, and many of these people are in small businesses, or in some cases even sole proprietors. They have taken a pay cut, in many cases, to serve their country. They do not get paid as much for serving on active duty. The result is that many of them have been put into difficulty.
What we do is extend the foreclosure grace period from 90 days to 9 months, and we extend the freeze on mortgage interest rates for the first year a soldier is home. This is one of the ways we can make good on the rhetoric which is present all over the country about how we care for the veterans but, in fact, whether it is the VA budget or counseling or post-traumatic stress syndrome, or a host of other things, we have rarely put enough money there to keep pace with that rhetoric.
This helps to do it. I do thank Senator Dodd for his work to include those provisions in this bill. I do not think anybody wants to see an Iraq or Afghanistan or any other area veteran join their brothers and sisters who served in Vietnam, too many of whom were in the ranks of the homeless or the dispossessed during those years. We owe them more for their plights. This helps to do that.
I close by drawing attention to the fact that a record 37.3 million households currently pay more than 30 percent of their income on housing costs, and more than 17 million Americans are paying more than half of their income to be in their homes. So as we consider additional remedies down the road, I hope we are going to deal with the fact that we can create jobs while easing the affordable lending housing crisis if we were to pass this and pay more attention.
I used to be chairman of the Housing Subcommittee on Banking before I went over to Finance.
I know for almost 10 years we were struggling to get one voucher or two for housing. It wasn't until 1999 that we got the first 50,000 vouchers in 10 years and the year after 100,000. But we have neglected housing as a matter of national policy for almost 20 years now. What some of us wish to do is create a housing trust fund that takes money from the surplus that comes through the FHA lending program, insurance program. But the money that housing produces in surplus actually goes to the general revenue. Some of us believe money produced by housing, that creates a profit in effect or a surplus for the Federal Government, ought to go back into housing rather than continually have housing be the stepchild of American policy. We hope we will ultimately be able to do that.
I urge my colleagues to vote for this legislation. I thank my colleague from Oregon for his patience and, most importantly, for his coefforts in this initiative.
I yield the floor.