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Hearing of the Senate Committee on Finance - The Housing Decline: The Extent of the Problem and Potential Remedies


Location: Washington, DC


SEN. DEBBIE STABENOW (D-MI): Thank you very much Mr. Chairman for this hearing. It's such an important topic, and thank you to all of you. It's good to see you.

We are all looking, on our committee and the Banking Committee, in working with the administrations and so on on what we can do. And I guess the first question that I would have relates to what you've been talking about in terms of the mortgage tax cancellation legislation which I've introduced with Senator Voinovich and a bipartisan group, and there's a bill that's passed the House, as you know.

The House bill is permanent. Those of us in the Senate would like to make it temporary. We may be in a situation with the interest of time now to get something on the books and clarify it, you know, as we go forward. But would you agree that it's critically important to get something in place for this year?

I mean, we're hearing -- I'm certainly hearing at home -- I think I'm asked about this almost as much as anything now in terms of people who are in a situation of foreclosure, short sale, refinancing, but find themselves not only have a hardship, may be losing their home, but may be having a new tax bill. And so, would you agree with a sense of urgency, that we address this, this year?

MR. KEMP: Absolutely, absolutely, I think it's -- the chairman began, Senator, by alluding to your bill. And I think all of us, to one degree or another, agree that it should be passed as immediately as possible. It passed the House, and it is -- I think it should be sun-setted, but that would be up to the wisdom of the Senate and the House conference.

MS. GEIER: One thing I didn't get a chance to mention, but is in my written testimony is that the effective date of H.R. 3648 is for debt forgiveness income that arises after January 1, 2007.

And one of the things that I mentioned in my written testimony is that I do think that if in fact there were substantial foreclosures due to falling home prices in 2006, that it would be justifiable to even make it retroactive before then. If this isn't conceptually income, it shouldn't be taxed whenever it rises.

SEN. STABENOW: All right. Thank you.

And I thank the chairman -- thank you, Mr. Chairman for mentioning the bill. And I know you are leading our efforts to address this. On a little different topic in the sense of what we ought to be doing -- I know that the administration has put forward a 1-800 number, I know the mortgage bankers were at a U.S. Conference of Mayors meeting where I was -- I participated on this issue a couple of weeks ago in Detroit, and indicate they are putting forward resources and also a database on their website so that people can find out who actually holds the loans since these days it's not just going back to your lender. You're trying to figure out who you talked to -- who has the -- who holds the loan.

And -- but we also have dollars in the budget, $200 million, that we have passed for counseling to be able to help people sort through these things.

Is that an important piece? I may have missed this. I apologize if I was not in the room. If anyone mentioned the extent to which individually now being able to help people sort out who has their mortgage, what are the options, do they fit under what the president announced or not.

Unfortunately, most folks in Michigan don't, because they're not current on their payments and not in a situation to take advantage of it. But we want people to be able to be helped and not be placed into a situation where in fact they go into foreclosure.

MR. KEMP: I alluded to that in my testimony, Madam Senator, and the chairman alluded to it earlier as well. I also mentioned a limited change to our bankruptcy laws to provide relief for distressed home owners. We provide that type of relief for real estate loans, vacation home loans, car loans, and other secured debt. So I think it should be also -- it passed yesterday, in the House Judiciary Committee, it seems to me, would be a limited change to our bankruptcy laws. So it would be quite progressive.

SEN. BAUCUS: And -- I want to ask, if Senator, you'll --


SEN. BAUCUS: I could never understand why there is that distinction in the law.

MR. KEMP: It was changed in 1978. I was in the Congress. I went back and looked at it, and it passed by voice vote. So I could -- how did I vote, you know, and it passed by voice vote. I don't even know what I did. I wish I had spoken up then, because I think it is a ridiculous --

(Cross talk.)

SEN. BAUCUS: I did too. I just wonder about the origin of all that, and I'm just curious if you knew and --

(Cross talk.)

MR. KEMP: One last point, Mr. Chairman, to Senator Stabenow.

I mentioned also the mortgage insurance tax deduction expires. I'd like to see that renewed. And I want to submit for the record -- I was watching Kudlow and Company on -- I forget -- I better be careful here, the battle between the cable shows. But Kudlow had a very interesting chart on where a -- the problem is among the ARMs, prime and subprime. And the fed funds rate from '02 to '05 and suddenly going from 1 percent to 5.25 percent and what that did to those ARMs --


MR. KEMP: And 60 percent of the foreclosures are in the prime and subprime ARMs market. And I would just like to submit it to the chairman's staff for the record.

SEN. BAUCUS: Without objection.

SEN. STABENOW: Thank you, and I'm -- just in closing, I would say, and what we know also from testimony is most of those are coming due. Those resets -- we haven't even seen all of them -- begun to seem them yet, and so we have got a lot to do. And I know we're working on FHA reform, and the tax piece and other bonding authority and a number of things. But it should have certainly our highest urgency. And Mr. Chairman, thank you for --


SEN. STABENOW: Mr. Chairman, might I just insert?

You had mentioned Fannie Mae, and Freddie Mac, and I couldn't agree more that with the idea, as quasi-governmental entities that we setup just to address these kinds of issues, to be there -- to be able to support the housing market that they could do more, but they are saying they would do more if we allow them to do that, to be able to raise their limits so they could place more capital into the marketplace, and I would be interested in your reaction to having them be able to participate more.

It seems to make a whole lot of sense to me that we would look to them, they are willing to do it, they have a track record, obviously the expertise to be able to more aggressively help.

MR. DECKER: Raising the conforming loan limit is one of the issues that's been on the table with respect to Fannie Mae and Freddie Mac, and I think that there are certainly some positives associated with doing that.

You know, I think that the conforming mortgage market, the Fannie, Freddie, and Ginnie Mae eligible part of the market has -- like I said, has remained robust, and has remained liquid through the crisis.

The other side of the argument is that the mortgage agencies have a competitive advantage relative to private participants in the market and that expanding their scope creates a disadvantage for private market participants. I think you have to weigh those kinds of concerns.

SEN. STABENOW: Thank you.


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