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Restoring American Finacial Stability Act of 2010 - Continued

Floor Speech

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Date:
Location: Washington, DC

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Mr. GREGG. Mr. President, I wish to join in congratulating Senator Corker, Senator Isakson, Senator Shelby, and others who have come together around this issue of better underwriting standards.

It is hard for me to understand why this would be resisted in this bill because this has been outlined both by Senator Corker and by Senator Isakson. It was underwriting that created the problems which led our Nation to the brink of a fiscal collapse.

The way I have described it is this: What we had was an inverted pyramid. We had this situation where an individual made a loan to another individual or a corporation made a loan to an individual based on the value of a piece of property. Unfortunately, when that loan was made, it was made in a way where nobody looked at the value of the property relative to the loan and nobody looked at whether the person who was getting the loan could pay it back because the system no longer had strong underwriting standards.

Then that loan was taken and it was syndicated, it was securitized, it was synthesized, and it became multiplied, as the Senator from Tennessee said, into $600 trillion of notional value. We ended up with this huge pyramid of debt built on the basis of this loan down here at the bottom between this corporation and this individual, this loan which was based on value which was not there, and ability to repay, which was not there once the rates of the loan were reset.

Why did this happen? Why was this loan so inappropriately made? It was inappropriately made because we had a breakdown in underwriting standards. I have been through three of these events in my professional career: once in the late seventies when I was involved in representing a bank in New Hampshire, once in the late eighties when I was Governor of New Hampshire, and now.

Three major financial disruptions which were created almost entirely by a failure in underwriting standards, where people were making loans that couldn't be paid back based on asset value which wasn't there. It just was aggravated radically this time because of the way the system suddenly took these loans and exploded them through the securitization process and the syndication process.

So if you are going to fix this problem, if you are going to put in place a regulatory reform system which actually fixes the issues which caused the crisis, you have to address underwriting standards. That is why the Corker amendment is so critical, because this bill does not address underwriting standards in any other way, in any significant manner. So if you are going to have a legitimate effort to try to make sure this type of an event doesn't occur again, you have to put in place underwriting standards which establish the rules of the road, which say that in the future America will not allow this sort of proliferation of lending which is not properly secured, where we know that the person getting the loan can't repay the obligation. Ironically, in this situation, these loans were made, in some instances, with the full understanding that this wouldn't happen, that they couldn't repay and the value wasn't there. Why? Because we separated underwriting standards from the process of actually making the loan. The people making loans were only interested in making a fee. They were not interested in making sure there was value of the security. They weren't interested in making sure the people could repay. They were just interested in the fee.

This should stop. The language Senator Corker has put before us would accomplish that. It would put in place not unusual underwriting standards, not new underwriting standards, it would simply go back essentially to the types of standards--and they are not quite as strict, honestly--we had at a prior time when we didn't have this kind of risk in the marketplace because people knew when they borrowed money to buy a house they were going to have to put money down, and if they didn't put the full amount of the value down, they would have to have insurance to cover the difference. They knew their creditworthiness was going to be checked, and thoroughly checked, and their ability to pay the loan was going to be checked. So it is a totally reasonable approach.

If you are going to do one thing in this bill to avoid a future event like the one we confronted in late 2008 where basically the entire financial industry of this country almost melted down, if you are going to do one thing to prevent that event, you should adopt the Corker amendment. This should be a bipartisan amendment. I don't understand any opposition to it. I don't understand the concept which would oppose it because it is basically good banking and good lending. It is also good for the people who borrow money because they are not going to get money just arbitrarily but only if they have the value in the asset they are borrowing on and if they have the ability to repay. So I certainly hope this amendment will be approved.

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