Facing Foreclosure
Floor Speech
Mr. DURBIN. Mr. President, tomorrow we will consider a measure that will change the Bankruptcy Code. Currently, the Bankruptcy Code says if someone is facing foreclosure on their home and they go into the bankruptcy court, the bankruptcy court cannot rewrite their mortgage under section 13 of the Bankruptcy Code. The problem is, if someone happens to own a piece of property that is a vacation home, such as a condo in Florida, or if they own a ranch or a farm, the bankruptcy judge seeing this foreclosure can rewrite the mortgage, but not for their home.
What difference does it make? It means that the millions of people who
are facing foreclosure today do not have the protection of a bankruptcy court that can ultimately give them a chance to stay in their homes.
This is not the first time the Senate will consider this measure. A year ago I offered virtually the same amendment, with some changes to it, and it was rejected by the Senate. It was opposed by the banking industry. They argued that it was unnecessary. They said at the time that we were likely to only see about 2 million homes facing foreclosure. That was a year ago. I said at the time I hoped they were right, but some people thought it could get worse.
Today it is projected by Moody's that 8.1 million homes in America will go into foreclosure. Put that in perspective. One out of every six home mortgages in America will go into foreclosure. That means on your block, on your street, it is likely somebody's home will go into foreclosure.
What does it mean to you? A foreclosed home on your street diminishes the value of your home. Even if you have made every mortgage payment, that is what happens. And if you happen to be in a neighborhood where other bad things occur, that foreclosed home can deteriorate quickly, can be an eyesore, could even be a criminal haven where drug gangs can hang out. If you think I am exaggerating, I can take you to neighborhoods in Chicago where that has occurred. The boarded-up home has become the hangout for the gangs. What was otherwise a very nice family neighborhood is being threatened because of a foreclosed home.
Mr. President, 99 percent of the homes that go into foreclosure go back to the banks. Do the banks turn around and sell them or rent them? Usually not. They sit vacant waiting for the market to turn around. I am afraid it is going to be a long wait because, sadly, too many of these homes are headed toward foreclosure and the banks that hold the mortgages are not sitting down with people to work out the differences.
I have met people who are facing this situation. Some of them go to work every day with good jobs--people who bought their homes in good faith and then saw a mortgage reset or a set of circumstances where the value of their home started to plummet and become lower and the value became lower than the principal owed on the mortgage. They say they are underwater. It destroys their credit just because the home has less value than the principal they owe on the mortgage.
So they cannot refinance the home. They are stuck with an interest rate that is too high. They cannot take advantage of the lower interest rate because the bank says: You have bad credit. And they say: My bad credit is my home. If you will refinance it, I can stay there. No. They will not do it. So people end up facing default, delinquency, and foreclosure.
We have sat down with the banks for months to try to work out some agreement with them, some compromise, and we have come up with an approach which I think is reasonable. What we say is, the homeowner facing foreclosure has to go to the bank at least 45 days before they go into bankruptcy court and present all their legal documents to prove their income and their net worth--everything you would have to present to ask for a mortgage. Then, if the bank offers them a mortgage--a mortgage for which the homeowner would pay at least 31 percent of their gross income in mortgage payments--if the bank offers them a mortgage, and they do not take it, then they cannot go to bankruptcy court and ask the judge to rewrite the mortgage. The bank has, in good faith, offered them a renegotiation of their mortgage, and if they turn it down, then the bank has met its obligation.
I do not think that is unreasonable. We put a limit so you could not have mansions and multimillion-dollar homes affected by it. The maximum value of any home under this amendment is $729,000. It only applies to mortgage loans that were originated before January 1 of this year, and only loans that are at least 60 days delinquent are eligible for bankruptcy modification. What we are trying to do is to create a circumstance where people can go in and renegotiate a mortgage before they lose their home.
I think this is reasonable. It puts a burden on the bank to do something positive, puts a burden on the borrower to go back into the bank and sit down at the desk and see if they can work it out, and, frankly, says if it cannot be worked out--if the offer is made and the mortgage cannot go through--that is the end of the story and it is going to be a bad outcome. The person is going to face ultimate foreclosure and loss of their home.
I tried now for months to get the banks to agree to this. We have sat down with the American Banking Association, with the community bankers, with the major banks in America. Only one banking interest, Citigroup, has been supportive. Virtually every other banking operation has refused to meet with us, refused to negotiate with us, refused to come up with any kind of a compromise.
How many people will be affected if we adopt this Durbin amendment tomorrow? It is 1.7 million families. That is the number of families who will either be helped in them being able to save their home or be allowed to be thrown out on the street if this amendment fails.
Later this week, the Senate will have an opportunity to vote--tomorrow--on this Helping Families Save Their Homes Act, which would help 1.7 million families avoid foreclosure. My amendment would make a small change in the Bankruptcy Code, but it would create a new environment for people facing foreclosure.
When a foreclosure is avoided and people can stay in their homes, everybody wins. The family gets to keep their home. The neighborhood is not assaulted by foreclosure. The banks, which can be out of pocket $50,000 in a foreclosure, will not have to put that money into it. The banks do not end up owning this home and worrying about the safety and security and maintenance of the property. The lenders do fine and the Government as well.
I have come to the floor each week to talk about this issue because I know many of my colleagues have been quoted in local newspapers and have not sat down to take a look at what we are going to vote on tomorrow. I understand. We are busy. We had a budget resolution, a lot of things people need to take a close look at.
This amendment is different than what I offered last year. It is an amendment which I think is reasonable and allows banks the last word, basically a veto, as to whether this issue can be raised in bankruptcy court.
Our objective is to help more Americans stay in their homes, to help them renegotiate mortgages that will work for them and their families. Mortgage servicers are given a full veto regarding which of their borrowers can go into bankruptcy court. They have the keys to the courthouse door. You would think that was enough--that if you say to the bankers: You have the final word as to whether this person goes to bankruptcy court, you would think that was enough, but it is not. The American Bankers Association walked away from the table and said they were not interested in negotiating. They are in a situation where they have basically said they do not believe they have any obligation to these people facing foreclosure.
There is a movie I have seen probably 100 times called ``It's a Wonderful Life,'' with Jimmy Stewart. Remember that? You can't miss it at Christmas. It comes up over and over. Jimmy Stewart, in a little town--Bedford Falls, I think, was the name of it--had a building and loan just trying to help people build and own their homes. He was up against the big banker, Henry F. Potter, played by Lionel Barrymore. They had some great lines in that movie.
They had a little exchange there where George Bailey had met with this Henry F. Potter, and Mr. Potter had said George Bailey's father, who started this whole building and loan, was a failure in life. Jimmy Stewart--through the character of George Bailey--was speaking to this banker, Henry F. Potter. He was talking about the average people who bought homes through the building and loan, which he ran. He said to Henry F. Potter:
Do you know how long it takes a working man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you're talking about ..... they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?
Well, you know how the story ends. The people in the community who have been helped by the building and loan end up rallying to save George Bailey's business, and it is a great, wonderful movie: ``It's a Wonderful Life.''
I will tell you what, dealing with the banks on this issue, I am afraid they are more inspired by Henry F. Potter than George Bailey.
The banks that are too big to fail are saying that 8 million Americans facing foreclosure are too little to count in this economy.
The banks that are fighting for their multimillion-dollar executive bonuses will not consider giving a struggling homeowner a chance to save the most important asset in their life.
The banks that are opening beautiful branch offices on every street corner cannot be troubled by America's Main Streets devastated by foreclosure.
That is the sad reality, as these banking groups have walked away. Do not forget, these are the same banking groups that have collected literally billions of dollars from taxpayers across this country because of their own failures in leadership and management, because of the housing crisis which they created, which they fostered, and which is threatening our economy even today.
They take the money from the Federal Government, from average working taxpayers, because of the mistakes they have made, and they will not turn around and lift their finger, give a helping hand to people who are about to lose their homes.
I know it sounds harsh when I say it this way, but I believe it. I have been at this too long not to understand what is at stake. These banks are unwilling to risk a dollar in profit to allow a family to stay in their home. That is what it boils down to. They are unwilling to risk a dollar in profit.
Well, I do not think that is good for America. I hope a majority of my colleagues in the Senate agree. I sincerely hope that those who are having second thoughts about this measure will take the time to read it. We have worked long and hard to make this a reasonable approach, one that will help the 8 million people who are facing foreclosure and save 1.7 million homes and do it in a manner that I think most people would agree is reasonable.
It has been a long battle. I lost it a year ago. People said: Well, you know this housing crisis is not going to get any worse, Durbin. You are just telling us things that are not going to happen.
Well, I wish they were right and I was wrong. But, sadly, history shows that this foreclosure crisis continues. Do you want to see an end to this recession? Put an end to this housing crisis. Let people stay in their homes if they can possibly put it together. Create a market for new homes to be built. And put Americans back to work building those homes and remodeling and renovating them. That is what is going to breathe life into this economy.
But this Senator wants to put the banking interests on notice, I am not going to be a party to shoveling billions more in taxpayer dollars your way if you will not lift a finger to help these people who are facing foreclosure across America today.
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