NEW DIRECTION FOR ENERGY INDEPENDENCE, NATIONAL SECURITY, AND CONSUMER PROTECTION ACT AND THE RENEWABLE ENERGY AND ENERGY CONSERVATION TAX ACT OF 2007 -- (Senate - April 03, 2008)
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Mr. BROWNBACK. Thank you very much, Mr. President.
I thank my colleague from Louisiana. I appreciate the information she has put forward. I will certainly be looking at it and considering it.
I am delighted we are on the housing bill. Chairman Bernanke of the Federal Reserve, who was in front of the Joint Economic Committee yesterday, I thought did a nice job testifying. There are lot of interesting things going on as to what he was talking about taking place. But he was saying the primary thing to watch in the economy right now is housing, the price of housing, it is holding or declining--it is declining in a number of key areas--but to watch that marketplace because that is the linchpin issue. He urged Congress to act on housing.
So I am delighted we have this bill up. I am delighted we have a bipartisan bill that I can look at and say a number of the provisions look pretty good. We do not try to get too one-sided one way or the other so it gets held up. Because this is something we need to act on. I think it would be a good confidence builder for the housing market across the country if we can get something through here, through the House, and signed by the President.
Having confidence is a key part of the marketplace. Confidence is a key part of what they did on the Bear Stearns bailout. He said a year ago they probably would not have done it. A year from now, they probably would not do it. But right now things are too shaky and it could cause things to crumble. The key piece to watch is housing.
So it is good we are working on this legislation. It is good we are working in a bipartisan fashion. I will be filing an amendment that I think can be very helpful in the pay-fors on this because we need to pay for this. We are in a difficult budgetary situation, so we have a commission bill to look at all spending within HUD and within Treasury and to make recommendations for programs to be eliminated and then requiring a vote of Congress, up or down, whether to eliminate these programs and then use those funds to pay for some of the efforts that are taking place here.
I think this is the sort of thing we ought to look at and the sort of thing we ought to do in paying for this because nobody wants the deficit to go up further. I think that is everybody's objective. So we are going to be putting forward that amendment and at the appropriate time bring that up.
One of the key things we need to look at and to do on this is something every physician in the United States does when they become a physician. They take an oath. We take an oath of office. We swear to uphold and abide by the Constitution. A physician takes an oath. It is a very simple, very old oath. I think it is a very good one for legislating as well. The oath is very simple. It is, ``First, do no harm.'' That is the first premise that you operate on: ``First, do no harm.''
I appreciate the amendment my colleague from Illinois has up on the restructuring of loans within bankruptcy, cramdown provisions on residential homes people own. I understand the provision. As to my background in the law practice I had, such as it was--I am not bragging about a fabulous law practice; it was a pretty simple pedestrian law practice in Manhattan, KS--we did bankruptcies and we had provisions similar to these in other areas. They were not existing on the loans. So I think I have some familiarity with the impact of this. I believe this one violates the oath of: ``First, do no harm.''
I know my colleague from Illinois has all the right intentions, and I have worked closely with him on a number of issues. He is a very successful, able legislator. I believe this one violates that oath of: ``First, do no harm.'' I say that advisedly. A number of people looking at this believe this provision, if added to this bill and becoming the law of the United States, will drive up mortgage interest rates on residential homes 1 to 2 percent because it introduces a degree of uncertainty. Markets do not like uncertainty, so they factor in for uncertainty. It is believed this would increase mortgage interest rates 1 to 2 percent. I think there could be some fluff in that number. It could be low, initially. Typically, as well, markets will look at things, and at first they will factor more risk in until they have had some practice with this and seen how it hits in the numbers. So maybe over a period of time it would not have as much of an impact. But earlier on it could have more of an impact. Right at the point in time when we are trying to stimulate the housing market, you up your mortgage interest rates on your primary residence 1 to 2 percent, possibly more, because early on the market has not factored in: What will this actually do?
The other thing it could well do on top of increasing interest rates is reduce the number of people who could borrow to buy a home. In fact, in 1978 Congress specifically barred cramdown on primary residences to keep interest rates low for primary homes and to ensure that lenders provide credit to low-income borrowers. As many people are in a low-income situation, a more fragile economic situation, if things go south for them on a set of items, they have no choice but to pursue bankruptcy. So now then you introduce another set of risk factors on low-income individuals where it is going to make it harder for them to get a mortgage to buy a home.
We want people to be able to buy homes. We want particularly low-income individuals to be able to buy homes. If we introduce another factor of uncertainty that is going to drive interest rates up, it could well end up
working out that a low-income individual will have their interest rates driven up even more than the 1 to 2 percent, as the factors for risk are built into it.
Again, I add, these are things that are unknown. I have groups that are saying this is indeed the case. I don't think we particularly know on this provision. But you are introducing that period of uncertainty with it.
If I could say to my colleague: I know you have talked a long time and you know this issue very well; I wish to finish my statement and then I am happy to take questions or comments, because I know there will be extensive rebuttal taking place on it.
I am talking about my experience. I am talking about what I believe will happen in this marketplace. I know it is intended to have a positive effect, but I think it violates this first ``do no harm'' provision.
I wish to add some other comments. What we are trying to do here is to stimulate a housing market, not introduce factors of risk into the housing market. We have a good bipartisan proposal that is being put on the floor by Senators DODD and SHELBY, two senior Members of this body who have seen a lot and who have worked on a lot. I think our wisest course at this point in time would be to work together on those provisions where we can get bipartisan support rather than introducing factors that are highly likely to slow down a bill. We need to encourage the market by showing an ability to work together.
This amendment, I believe, will be highly controversial and will continue to have the effect of slowing this bill down. The amendment would actually create an ability for unsecured creditors as well of an individual, to reduce their exposure, at the expense of a mortgageholder in consumer bankruptcy proceedings. I think this is an unintended consequence, but it is a consequence of it. This would be bad policy. This was considered in 1978. We want these mortgages to have as low a rate as we possibly can.
Potentially 4.5 million Americans could be priced out of the housing market for every 1 percent increase in mortgages. That is according to home builders. They are saying that. So if you have a 2-percent increase, you are looking at the possibility of keeping 9 million Americans priced out of the housing market at a time when we want them in the housing market. That is not going in the right direction.
Having said all of that, I think there are people who could look at this another way. Indeed, I asked Chairman Bernanke about this particular provision, because he said we ought to do work on the housing market. I asked him about this particular provision and he did not take a stance on it. He just said he didn't take a stance on prior bankruptcy reform. He said there are arguments on both sides. So I recognize arguments on the other side. I have used cramdown provisions in other bankruptcy settings, in business settings. It does introduce a factor of risk. It does allow restructuring to take place.
I think where we are right now, with his statements and with our ability to move a piece of legislation, the key thing we should do is to get the base legislation moving forward, add things where we can get broad bipartisan support, not introduce more risk into the marketplace and possibly limit mortgageholders. I am presuming my colleague from Illinois has facts he is putting forward which say this is not going to take place. I think it is too much of a possibility that it will take place, and that it will first do harm. For those reasons, with all due respect to its supporters, I don't think this is a wise provision. Of course, I don't think this is the time for us to do it. I think we ought to spend a lot more time studying and thinking about this. I believe this is not the bill for this amendment, and I object to the Durbin amendment.
Mr. DURBIN. Mr. President, would the Senator yield for a question?
Mr. BROWNBACK. I am happy to yield.
Mr. DURBIN. I have two questions. I know the Senator from Massachusetts, Senator Kennedy, wishes to speak on an unrelated issue. First, I wish to ask the Senator from Kansas, through the Chair, on the issue of uncertainty: Is the Senator from Kansas aware that on this amendment I am offering, I have narrowed the class of people eligible for this benefit, which would be modification of mortgage in Bankruptcy Court, to those who first qualify to go into Bankruptcy Court which, in many instances, requires credit counseling; secondly, that they must be talking about property that is their primary residence, not a piece of real estate they happen to own; third, that it be subject to a mortgage which is a subprime mortgage, not a prime rate mortgage; and fourth, that it has to be a mortgage that exists as of the date of the enactment of this legislation and none in the future? Also, that if there is to be a modification of the mortgage, it can be to a principal level no lower than the current fair market value; that the interest rate imposed by the court be no lower than the prime rate plus a premium for risk; that the term of the modification of the mortgage can be no more than 30 years, and that if within 5 years of bankruptcy the property is sold at a price higher than the fair market value at the time of bankruptcy, all of the proceeds will go to the lender--not to the owner, but to the lender?
I say to the Senator from Kansas that every time the banking and financial institutions came to me and said: It is too uncertain, too many people could benefit from this, every time they did that I would narrow this more and more and more. I would further say to the Senator from Kansas that if we are talking about a limited group of people who fit the description I have given here, how can you project this to have an impact on real estate mortgages of 1 and 2 percent into the future?
The last time we dealt with this issue in Congress was 30 years ago. The last time we had a housing crisis was 60 years ago. It isn't as if we are meeting every 6 months to change the law on mortgages and bankruptcy. I ask the Senator: How much more can I do to deal with his concern and the stated concerns of the banking industry about uncertainty?
Mr. BROWNBACK. Mr. President, responding to my colleague through the Chair, a couple of things. I appreciate that the Senator has narrowed this down from when he started, because he started with a much broader amendment; no question about it. I think what the Senator has done is advisable and good.
The base of the concern remains then the same, that now you have narrowed this in on a smaller class that you are going to raise the interest rates on because of the uncertainty that is going to be conducted there, or the likelihood of this having impacts on the mortgage marketplace and reducing their ability to get these houses on the market, which could further depress the prices on those houses. I think this is first do no harm. I appreciate that the Senator has narrowed this and he has narrowed it substantially.
I would also point out--and it was 1978 when we did the overall--we took up bankruptcy reform. We did that within the last 5 or 6 years where we had broad bankruptcy reform, and this sort of provision could have come forward in that bankruptcy reform at that point in time. I voted against that bankruptcy reform. I didn't think that overall was the way to go and that again was based on the experience I had in dealing with bankruptcy.
I appreciate the Senator's efforts. I think the basic issue he is introducing here continues to be the same even if it is within a narrow marketplace.
Mr. DURBIN. Will the Senator yield for one more question?
Mr. BROWNBACK. Yes.
Mr. DURBIN. I wish to ask the Senator from the great farming State of Kansas if, in his private practice experience with bankruptcy, he ever dealt with a chapter 12 bankruptcy involving farm real estate and whether he believes that the change in the bankruptcy law in the 1980s, which allowed cramdown or modification of the mortgages on farm homes, was unreasonable; whether he believes that the banking institutions which fought that chapter 12 bankruptcy saying it would raise interest rates 1 or 2 percent on farmers--and it didn't turn out to be the case--whether we ought to believe those financial institutions again today when we talk about using the same provision--or a similar provision, I should say--as chapter 12 to deal with the current housing crisis? Did the Senator from Kansas feel it was unfair to allow cramdowns or modifications of mortgages in farm bankruptcies in his own State under chapter 12?
Mr. BROWNBACK. Mr. President, if I could respond to my colleague through the Chair, again in my limited background--I have actually taught agricultural law and written a book on it. It is not very good. I doubt my colleague has read it. I would recommend this chapter of it for him if he wishes to read it.
In the provisions that were done at that time before either of us were in the Senate, what you were doing was taking business bankruptcy reorganizations and allowing for farm application because it was a different business type of setting that was taking place. It did introduce risks that are even still factored in today, because this is a provision that is allowed within it.
Now, as I mentioned earlier, over a period of time as markets get adjusted to these, they say: Well, OK, this factor is only going to happen in this series of cases. Or they looked at lower end income clients and they said this is a more likely situation where we are going to see this taking place. Therefore, we are not going to loan to this guy, or it only goes to a bank that is willing to get into a more aggressive loan position and is desirous to do it. So it does have those impacts.
But what you were doing with that chapter reorganization during the farm crisis was taking a business reorganization and allowing for the differences in agriculture which are substantial. Now you are getting into the basic housing market with this. This isn't a business reorganization; this is a housing market issue, and you are introducing the very factors I talk about--in a limited fashion; I appreciate that greatly. I think it is less harmful potentially than the original design of the Durbin amendment. I appreciate your heart on it. It is going to have an introduction of factors of uncertainty and will drive interest rates up, and it will drive lenders out in this situation. That is what will happen. I don't think we should go that route.