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SEN. ENSIGN: (In progress) -- four and a four half percent interest rate. Right now, according to how the market normally works, interest rates are about a point and a half higher than what they should be and what we're trying to do is to reestablish what the markets should be.
So what our bill would say is that we are going to instruct the Treasury to come up with the exact plan. We're going to give them $300 billion to do this to where Fannie Mae and Freddie Mac would buy the loans from the banks immediately so the banks don't have these on their books any longer. Anybody who has either a qualified mortgage, which means they have five percent equity in their mortgage or if they currently have a Fannie Mae or Freddie Mac-backed mortgage would be able to qualify for this new lower interest rate and the government would guarantee those mortgages for the next year and a half, anybody who signs up in the next year and a half, but these will be 30-year fixed mortgages.
You have to ask yourselves out there if you're, let's say you have right now one of these subprime loans, maybe it's an adjustable rate mortgage that's going to go to seven, eight, nine percent, wouldn't a four, four and a quarter percent mortgage be attractive to you right now? Wouldn't that put more money in your pocket and maybe allow you to stay in that home instead of defaulting and walking away?
As Lamar Alexander said, if we don't fix housing first, we are not going to fix the economic problems in our country today and that's why we are bringing a proposal to help a big part of the housing market.
Senator Isakson will describe his proposal in just a minute and it's something I very strongly support. We tried to do it last year. I've included his amendment in mine. We'll probably have a separate vote on his amendment, but I've also included his amendment because I think it's so important to also help the purchase of new homes or of homes that are already out on the marketplace and then we've done a third thing and that is homes right now that need to have, that are upside down, that need to have their mortgages brought down, in other words, if they're upside down, let's say they have a $250,000 mortgage, but the household is only worth $200,000, we're going to give incentives to folks to lower that down to where folks could actually stay so they won't be upside down in those mortgages.
In my state of Nevada, just on the lower interest rates, two- thirds of the homeowners in Nevada would qualify for this lower interest rate. On the average in America, $450 per month is what the average American who qualifies for one of these loans would have extra money to spend, that's spending in the economy and the difference between this and what President Bush did last year sending out checks or what's in the bill that's on the floor, the difference is this is money they can count on because it's a 30-year fixed loan so they can build it into their budget and when people have that incentive, just getting a one-time check or maybe a few checks, is they can count on that money being there so they'll actually go out and spend it and that's what the economists have been telling us why permanency in some of these things is so important to actually stimulate the economy.
So we think this is very, very important. By the way, other parts of our bill, we do three things, basically, we fix housing, we eliminate the wasteful and excessive spending by the government and we also have tax incentives in there that will give everyday, especially low and middle income Americans more of their money and we give tax breaks to small businesses to create jobs.
So we fix housing, we create jobs and we eliminate wasteful and excessive government spending with our proposal. We look forward to a vigorous debate and we think it's a better alternative. We think it's actually going to do something that's going to save the economy instead of just adding a tremendous amount of debt onto our children and our grandchildren and not even just to them, to all of us, this debt is going to cause us all to have to pay higher taxes in just a few years if we allow the proposal that's on the floor to -- (audio break).
SEN. ISAKSON: (In progress following audio break) -- that you can look back as a legislator to history and get guidance to solve what is really a catastrophic problem, but we do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what's happening now. We had a three year supply of built and new houses on the market unsold, values were declining, people were going bankrupt, house values and equities were going down and a Republican President Gerald Ford and a Democratic majority in the House and Senate passed a $2,000 tax credit for the purchase of any home by a family or an individual that they would occupy and live in as their principal residence for at least three years.
Within one year of the inception of that tax credit, two-thirds of the available inventory that was on the market was gone. The market moved back to a balanced inventory, values stabilized and things became very healthy. The only reason I know all of that is I was selling houses in 1974, that's what I was doing to feed my family and make a living.
Last year, when we hit the downward spiral in the beginning of it and foreclosures and unsold inventory, I introduced a tax credit that went to the Finance Committee. It was $15,000 on the purchase of any new, vacant home or any foreclosed upon or pending foreclosed home. It scored $11.4 billion and the Finance Committee said that's too expensive.
Well, I would submit to you we've spent trillions of dollars since then and still have a bad problem, and now is the time to really focus on the heart of the problem in our economy and that is the demise of the housing market, which has multiple facets. One in five houses now are under water in this country, meaning they're worth less than is owed upon them, one in ten houses either in foreclosure or has been foreclosed upon. That is an unacceptable rate and will continue to accelerate if we don't infuse the market.
So this year what we've introduced is the same thing with a couple additions, it's $15,000 or ten percent of the purchase price, whichever is less. It can be taken against the '09 or '10 return in terms of $7,500 a year or it can be actually monetized and taken against the '08 return, which will be filed this April, which is immediate cash in terms of that money, and remember, it's the taxpayers' money, the money they're going to have paid or will pay to the federal government.
They have to own the house and occupy it for at least three years. If they sell it early, you have a prorated repayment of the credit, but they are unlike last year's $7,500 credit, which was the only thing we ended up doing to inspire housing. That had a 15-year interest-free loan where you paid the government back.
This one is a true credit. It's the borrowers and the buyers' money.
It promotes home ownership and I would submit to you, it'll be the key in doing two things, one is regenerating equity and values in this country, second, is by viable purchasers purchasing troubled loans and troubled homes from families that are in trouble and replacing what is a non-performing loan with a performing asset and when we do that, we change the paradigm and over time, we'll come back to a robust economy, a robust housing market and it is the beginning of what's going to be a long climb back to some sense of normalcy.
SEN. ENSIGN: And Johnny, with our four and a quarter percent interest rate thereabout, $15,000 tax credit --
SEN. ISAKSON: It's a win-win proposition.
SEN. ENSIGN: Absolutely. We can, together; we can help solve this housing crisis in the United States.
We'll take questions.
Q (Off mike.)
SEN. ENSIGN: Well, what did the president say last night and he's urged Congress? We need to act and we need to act quickly because things are getting worse. Things are getting worse very, very quickly. What is the underlying problem? Everybody agrees the underlying problem is housing and this bill that we have before us that we're rushing through, a large part of the money doesn't even get spent for the next two years. We should be fixing housing first, that's why we're saying we should have been doing this, focusing on housing this week instead of this so-called, you know, stimulus bill, which is really just a big government spending bill.
Q (Off mike.)
SEN. ENSIGN: Well, first of all, our proposal is a total of $500 billion, okay, and we would just take from the Democratic proposal, put that aside and put our proposal in. If somebody wants to amend our proposal, add some infrastructure in or whatever, but ours is a lot less expensive, and by the way, the economists tell us that even though we're authorizing $300 billion for this, this is really like seed money for Fannie and Freddie that they're not going to have to use that much of it and the true cost is probably only going to be about $30 billion.
So instead of a $500 billion, ours is probably going to be less than half of that instead of a $1.3 trillion bill that we have before us on the floor.
Q (Off mike.)
SEN. ISAKSON: Well, there are a cornucopia of opportunities in the bill to pay for something else other than what's there, but that also diverts the debate. I'll be real honest with you. I have been talking about this for 13 months. There are a lot of people in the chamber that want to support it, and today, an independent group of economists and Joe Lieberman addressed it, I had not seen it, had taken the amendment and analyzed it and said home sales would go to 1.2 million during the year of the tax credit. That is 700,000 more homes than the 500,000 rate today. He said there would be 571,000 new construction jobs immediately.
I haven't done the math yet, but the return on income taxes and business taxes and revenues to the government from 700 (thousand) more home sales and 587,000 more jobs will probably more than return the money. But there are plenty of places to pick and offset if you decide to do that, but most people that I've talked to on both sides of the aisle, as they said in the debate, three sides, the independent side, the Democratic side and the Republican side, all really believe that this is a catalytic agent to solve a declining problem, which, in itself, will bring in the revenue. I know that's dynamic scoring, but it happens to also work.
I'm an eternal optimist in politics, I'm cautiously optimistic and that's the way I am about everything, but I feel like people understand it's a meritorious proposal.
Q (Off mike.) How do you respond to that?
SEN. ISAKSON: Well, I shouldn't be doing it, Lamar probably ought to do it, but I'll say this and I said in an interview a minute ago, there is enough blame to go around the United States Capitol from both parties and the independents as well in terms of the spending issue. We lost a part of our base; Republicans did, because of spending. This bill is full of spending and it's originated from the other side of the aisle and it is a part of the problem that's contributed to a significant deficit.
So, number one, I would reject out of hand that the tax credit proposal is business as usually because it goes back to 1975 when it was done one time before in this country and it worked
So I think there's enough fault to go around in committees and parties. There's enough fault to go around the private sector. There's enough fault to go around on those that created the mortgage- backed subprime securities on Wall Street and Moody's and Standard rated them investment grade, but playing the blame game and pointing fingers at a time Americans -- 20 percent of their houses are under water, ten percent of them are in foreclosure or are already foreclosed upon, is an unacceptable political practice.
We should be joined together and taking those things that are proven to make a difference rather than argue about who was right and who was wrong. We were all wrong on too much stuff and that's why we have this problem.
SEN. ALEXANDER: Let me try to answer that, too. I think we would say, Mr. President, respectfully, we're doing exactly what you asked us to do. You made a proposal to get the economy moving again and sent us a piece of legislation. You asked to work in a bipartisan way and we're ready to do that. Unfortunately, the Democratic bill borrows $1 trillion and only about 13 percent of it goes to create jobs.
What we're giving you is what we believe is an improvement, number one, fix housing first with low interest mortgages and a tax credit for home buyers, number two, let people keep more of their own money, that's called tax relief, and number three, spending on only those programs like locks, dams, roads and bridges that can create jobs in the next year.
So we're trying to improve the bill in a bipartisan way and I would think that the president would welcome that.
Q (Off mike.)
SEN. ENSIGN: No, it's for new mortgages, it's for refinancing, it's both.
Q (Off mike.)
SEN. ENSIGN: Well, new ones, you would have to put at least five percent down on your home to qualify for one of these loans, that's how you get five percent equity. So if you put five percent down at least a minimum of five percent down, you'll be able to qualify for one of these loans. If you have a current loan that at least has five percent equity, you'd be able to qualify or if you have a current, even if it's under water, a current loan that's backed by Fannie Mae or Freddie Mac, then you would also qualify and that's why 40 million homes in America would qualify for this new lower interest rate, which is at least a point and a half less than whatever the market rate is out there. If the market goes up, it's going to be a point and a half less than whatever that is. If the rates go down, it will be a point and a half less than whatever the rates are.
So this is a good deal, but the rate will change for anybody who is getting into it at that time, but once you lock in the rate, that rate is fixed for 30 years. These are not adjustable rate mortgages.
Q (Off mike.)
SEN. ENSIGN: There were several things in, they were small, but there were several things in that the Senate Finance Committee and the Democrats did right, the NOL provisions, the small business expensing, the bonus depreciation was good, the cancellation of indebtedness, the compromise that we worked out with Chairman Baucus, that was a good thing.
So we put those things in, as well as we cut the marginal income tax rate for people under $60,000 a year. The ten percent rate goes to five and the 15 percent rate goes to ten. So we added those things so we get middle class tax relief, small business tax relief, eliminate wasteful and excessive government spending and we fix housing.
Q (Off mike.)
SEN. ALEXANDER: Well, what we're seeking to do is what the president asked us to do; we're trying to improve the bill. We believe there's a real problem for the American people, people are hurting right now and what we see in front of us is a spending bill, not a stimulus bill, borrowing $1 trillion, which we think is wrong.
So we're trying to reorient it toward housing, keeping more of your own money and getting rid of the spending that doesn't create jobs and we'll see where that goes. Where we hope it goes is that the president, that the Democrats modify their proposal and accept our ideas or some of our ideas and we've got the rest of the week to do that.
SEN. ENSIGN: Last question.
Q (Off mike.)
SEN. ENSIGN: Actually, what we do to incentivize the banks to participate in this because people have said why would banks want to do this? We instruct the Treasury to set a loan origination fee that would be subsidized, that's part of the cost of this bill, it's really only a few billion dollars out of the whole cost of this bill. That's the incentive for the bank, local community banks, whoever the banks are that are participating in this, that's the money they make because it automatically gets resold to Fannie and Freddie, but they would make probably anywhere from $1,500 to $2,500 and that pays them to process the loan to do all the legwork that's needed to do, so they make money on it and that's the incentive to get them to participate.
Thank you all very much.