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SEN. MARTINEZ: (In progress) -- a result of what we see today, the crisis atmosphere we're living in, that FHA be modernized. And that FHA be used as a vehicle -- as a vehicle to help families out of troubled loans.
One of the things I'd like to see us do is to advance the idea of FHASecure, with enough flexibility in it to allow families that already have had a problem meeting their payments to refinance into an FHASecure mortgage, which will give them a more comfortable rate, and will give them the kind of mortgage that they live with. This is going to be a great first step into ensuring that families can stay in their home and keep the dream of -- the American dream of homeownership alive for that particular family.
The second thing we need to do -- or another thing we need to do is to look at the GSEs -- Fannie Mae and Freddie Mac. Over the last several days, in order to provide more liquidity into the mortgage market, the capital requirements for Fannie and Freddie were lowered from 30 percent to 20 percent. They had been raised to 30 (percent) when they got into some serious difficulty with their accounting practices. Lowering it to 20 (percent) is going to provide about $200 billion of mortgage money into the marketplace.
This is a good thing. But what we cannot forget is that we also, a few weeks ago, raised our loan limits. It's good to utilize Fannie and Freddie as a vehicle to help us out of the current crisis, but what we cannot afford to do is to continue with an outdated regulator, OFHEO, which, while they may try as best they can, does not have the tools necessary to properly regulate this gigantic mortgage vehicles, which are so important to the -- to the financial marketplace today.
So, a good, strong GSE regulator needs to be put in place. The legislation in the House and Senate has been considered now for over two years. It is time we do that. And that should be part of what we do in order to provide investor confidence in the marketplace and provide the kind of liquidity that is so necessary.
As I travel Florida -- as Kit did in Missouri, this is a real problem. It is not good enough for us to just say, we each go to our separate corners and we have our own ideas. It is time for us to come together -- Republicans and Democrats -- in a bipartisan fashion, as Leader McConnell said, just like we did on the stimulus package, to begin to move the ball forward and help the American people.
SEN. ENSIGN: I come from the State of Nevada, which has been the hardest hit of any state with this housing crisis. One out of 165 families has a home in foreclosure in Nevada. And it is not just the housing market that is being affected, it's the entire economy. And that point has to be emphasized, that we're not just addressing with this legislation today the housing market. We are trying to address what is happening to the entire economy.
If you study this thing, the financial markets, there is a credit problem -- there's a liquidity problem in the financial markets -- and it's being caused by what happened with the subprime market. So we need to drive that inventory out there so that we not only are helping the housing market out, but what we can do is help the entire economy out. And, as we go forward, we don't want -- if we just leave it alone, there's a great fear that this housing market can drag our economy down much further than what it is today.
Two points that I want to make about this legislation -- that we have put in this legislation: One, is that we have a lot of veterans returning home from Iraq and Afghanistan, and around the world. And many of them have come home -- you know, they're trying to pay their bills and everything; and right now we have -- we've allowed them a three-month kind of grace period. Well, that three months, for a lot of them, is not going to be enough, so we've doubled that grace period. It's the least that we can do for some of these returning heroes that we have coming home.
The second thing is, and Senator Bond touched on this a little bit, but it has to do with the Truth in Lending. If anybody has bought a home, you understand the complexity. You have no idea -- everybody recommends today that you actually have a lawyer when you are buying a house, simply because of the complexity of the documents.
Not only do we need to simplify that, but we also need to have those apply -- the Truth in Lending -- the disclosure laws apply to the ARMs, the adjustable rate mortgages. So many of the mortgages today are ARMs, and the Truth in Lending laws don't apply to those, and we're going to apply those to the -- to the ARMs in this, and also make it much simpler so that the average person can understand it.
I think these -- what we've done here today is combine a lot of different things to help the housing market -- make it simpler and get us out of this crisis so that the American economy can remain strong.
SEN. ALEXANDER: Thank you.
Republicans are focusing on the family budget. And we believe the way to help the family budget is to preserve home values for all Americans, and we have our ideas about how to do that.
Senator Isakson's idea, for example, about helping all homeowners by creating more home buyers, is a good idea. Senator Bond's legislation, Senator Ensign's legislation, Senator Martinez' experience as head of the Housing and Urban Development, all have important contributions to make.
The way for us to help the American people stabilize the housing market and restart the economy is for the majority leader to agree with the Republican leader to go forward in the way we did with the America Competes Act, for example, when we put all of our ideas out and voted. Or the energy bill last year, where we put Republican and Democratic ideas out, and came to a result. Or, with the energy -- or with the stimulus package earlier this year, where we incorporated Republican and Democratic ideas and then had a vote. Or with the Intelligence bill, which Senator Bond worked on, where we debated for six months, but then had votes on various amendments and came to a result.
We can do that on housing, we should do that on housing, and we're ready to do that on housing.
Just one example of why Republican ideas are important: The major Democratic idea, as Senator McConnell said, is a proposal which would basically turn home mortgages into junk bonds. It would mean higher risk, higher interest rates and higher monthly payments for every family with a mortgage going forward.
In Tennessee, it would raise mortgage rates -- it's estimated by the Mortgage Bankers Association -- about $120 a month. We don't believe that helps stabilize the family budget and secure the value of homes in America.
SEN. MCCONNELL: Okay, well, you have our housing experts here behind me. We'll be happy to open it up for any questions you may have.
Q Senator, would you -- would your caucus be willing to support a compromise bankruptcy provision -- one that narrowed the bill's -- (inaudible) -- existing adjustable rate and subprime mortgages, or -- (inaudible) --
SEN. MCCONNELL: Yeah, what's, what's been missing here is -- as I have underscored, and I think others have as well, including Senator Alexander, is the kind of bipartisan negotiation that we've had in these other examples, as Senator Alexander was citing. That is really the best way to go forward, rather than some kind of check-the-box procedural vote.
I've tried to get those talks going. So far they've been fruitless. But I think there's probably a bipartisan majority in the Senate that thinks we ought to do something, rather than just score points. And, hopefully, we'll continue our discussions -- Reid and I will continue our discussions, and we'll get to -- into a process that can actually produce a result.
You know, if we don't want to go through the regular order and have the Banking Committee itself work on a proposal -- as Senator Reid insisted that we do when we were on the stimulus package issue -- then let Senator Dodd and Senator Shelby see if they can come together and reach an agreement on things that we can do together quickly. The only way we will get something done with dispatch, is on a bipartisan basis, and we haven't gotten there quite yet. We'll see what happens in the next few hours.
Q What elements -- what elements within this package would you be willing to support?
SEN. MCCONNELL: I'm not going to negotiate the package in here. We've got the experts behind me, if you'd like to have them respond to any of the proposals that we think make sense -- many of which I expect the Democrats would agree with.
Q Senator McConnell, are you just in a holding pattern on cloture? Or you're not -- I mean, originally --
SEN. MCCONNELL: We're going to be discussing the issue over the next couple of hours, as I said, at the risk of being redundant, and see what we can do to stimulate the kind of discussions that are likely to lead to a result, rather than just do a sort of box-checking exercise.
Q I know you don't want bankruptcy judges --
SEN. MCCONNELL: Me?
Q -- or in general.
SEN. MCCONNELL: Yeah, if it's on the substance, let's hear from -- we've got some real experts back here.
Q I mean, you were talking about -- (inaudible) -- from bankruptcy judges, you're willing to support that. Banking regulators have said that they don't want lenders -- (inaudible) -- do you think that's advisable? I know there's been some -- (inaudible) --
SEN. MARTINEZ: Look, if a financial institution sees it in their best interest to renegotiate a bad mortgage, I think that's in everyone's best interest. And certainly, you know, work-outs are done all the time. I think anything we can do to encourage work-outs, I think is a great idea.
I think if adjustable rate mortgages could be brought back towards a set number, I think that would also be helpful.
The financial institutions recognize the value of not having, you know, foreclosed homes on their inventory but would rather have, you know, loans that are being successfully negotiated with their borrowers. But I just don't think it's the business of government to go renegotiate those loans on terms that we consider what they ought to be, because that will then have the added disastrous effect of eroding liquidity in the mortgage marketplace by, as Leader McConnell said, making all of the securitized bonds out there -- I mean, securitized mortgages out there -- essentially junk bonds.
SEN. ISAKSON: Let me just add to that. One of the things that I heard so often as I talked with the community leaders and the housing advocates is, foreclosure avoidance by counseling is beginning to work. We're just getting the money out, as Senator Martinez said. It's not in the interests of the lending institutions to have to go through the expense of foreclosure. If there is a way to work that out -- work out an agreement -- and those agreements are being worked out -- then that makes sense. For those who can't work it out with the lenders, if we can get the housing finance agencies to come in and buy up the paper and put it back to where the ARMs were before they reset -- and as you might guess, ARM reset is not something that is particularly attractive to my stomach right now. But the ARMs have reset as much as 50 percent above the original rate, and this has put many, many low income seniors on fixed incomes in a position where they can't pay the mortgage but where they could pay the original one. If we can do this and get the housing finance agencies with lower financing rates to reset the ARM, then we have an opportunity to keep the people in their homes and avoid the impact of mortgage foreclosures on the family itself, first and foremost, on the community secondly and just as important.
Q Can you talk about the -- (inaudible) -- bill and the effect that would have on the increased mortgage rates or mortgage -- (off mike) -- Illinois, New York and Nevada? Can you just explain so we can help explain to our readers how quickly that would happen? Isn't that more of a long-term impact, or would that -- (off mike)?
SEN. BOND: Let me take a shot at that. First of all, it can have an -- fairly immediate impact on some of the ARMs that are already out there. Banks are going to have to take into account risk on loans, and if they think that bankruptcy judges in the future can raise or can lower interest rates, it increases their risk. It increases the cost to them -- the lack of profit to the lending institutions, so they have to take that into account. So -- but also you have to look -- is this fair? Is this fair to somebody else and to the future who's going to be trying to get into the housing market, a first-time homebuyer -- their interest rates are higher because somebody else -- a bankruptcy judge tried to lower somebody else's interest rate arbitrarily someplace else. This is a terrible idea to have bankruptcy judges get in the middle of these contracts, and that's why I think that Republicans have come out so strongly against this proposal.
SEN. ENSIGN: The best information we have from the experts is that cramming down the rates would force about a 1-and-a-half percent increase in the average lending rate. Now, for every quarter of a point that the interest rates goes up, hundreds of thousands of homebuyers are denied the ability to capture -- to get a mortgage. One-and-a-half percent -- the estimates we have -- would deny 6.6 million homeowners across the United States the ability to get a mortgage they could afford.
SEN. ALEXANDER: One thing it's important to understand about mortgage money -- it's a commodity every bit as much as corn and oil is. If you have a refinery go down, the price goes up the next day -- that's because the market's responding to the ability of the country to produce. Same thing's going to be true on mortgage money: If we change American policy today, tomorrow, those rates will go up in anticipation of that policy. So it has an instant effect on the cost of money.
Q What about a more limited provision that only affected -- (off mike)?
SEN. ISAKSON: I'm the lowest ranking guy up here, but I would tell you this: We ought to be sitting down at the table -- people of good will -- talking about solutions, not trying to talk through you all about some suggestion of what we might do. This is the most important single problem facing the people of the United States of America. I traveled 47 counties, did 47 different events over the last two weeks. There were only two questions I was asked -- one was the price of oil; the other was, "What are you going to do about the housing crisis and the problems that we're having?"
We ought to be sitting down together, Democrats and Republicans, finding the best of both ideas and making a deal for the people of the United States of America, not a partisan party.
Q So Senator Isakson, can you just address that idea that Senator Durbin has said he's taking away the prospective nature of the bankruptcy provision. So legitimately, what happens then if you're not -- there's nothing to look forward to in the future and future loans if you're dealing with what's already happened. So how does that --
SEN. ISAKSON: That may be a fine step, and I'm perfectly willing to sit down with Dick Durbin and talk about that. And hopefully they'll be willing to talk about the things we're proposing, and we can come up with a common interest bill that benefits the people of the United States of America.
Q Senator Ensign, I suspect you don't agree?
SEN. ENSIGN: Well, everything should be on the table to be negotiated. And this is a point I think that the American people are saying to both parties is, "Quit being Republicans, quit being Democrats, let's start being Americans. Let's start working together here on proposals."
So while we -- the principles that we've outlined about the bankruptcy cram-down provision is certainly something that we are against, maybe there's certain things along the edges we might be able to negotiate. But as Senator McConnell said, we shouldn't negotiate in the press. We should sit down together as senators and House members, similar to what we did with the stimulus package, and actually work something out that we can agree on that we can get passed into law that the president can sign.
SEN. MCCONNELL: Okay. Thanks.