American Housing Rescue and Foreclosure Prevention Act of 2008

Floor Speech

AMERICAN HOUSING RESCUE AND FORECLOSURE PREVENTION ACT OF 2008 -- (Senate - June 19, 2008)

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Mr. GREGG. Mr. President, I am seeking recognition on the bill in morning business, but first I will comment on the oil issue. I am rising primarily to speak to the bill, which has been brought to the floor by the Senators from Connecticut and Alabama--and I congratulate them--at a time when there hasn't been a lot of effort to do business in a cooperative way to produce positive events for our Nation or Government. They have done it, and they deserve a tremendous amount of praise for that. I have not had a chance to read the whole bill, but I have listened to what they are planning to do. We have worked with their staffs. Up until a couple of weeks ago, we were working reasonably close, and Senator Shelby has been a force for progress. In my opinion, they appear to be on the right track. I want to get into the specifics of why I feel that way in a second.

OFFSHORE OIL EXPLORATION

First, I wish to talk about the oil issue, about whether or not we explore offshore. The proposal we have seen for energy that has been brought to the floor so far, primarily by the other side, has been to do three basic things. One is to litigate; sue the oil cartels. If you are the Saudis, and America gives American attorneys a new right to sue you, or if you are the Emirates States or some other oil-producing nation, you are going to be affronted by the fact that the United States would suddenly turn to its legal community and say: You can sue these other nations. I suspect my reaction, were I running a government of one of those countries that had oil reserves, would be to say, A, we don't need you, we don't need to sell you this oil; or, B, reinvest in your economy with the proceeds from purchasing this oil.

Our economy, to a large degree, is dependent upon people being willing to invest in it, both domestically and also internationally. Obviously, the petrodollars that are floating around the world because of the price of oil are a significant part of the investment capital in this world, and we are shipping overseas massive amounts of our capital to purchase oil. That is one of the biggest problems with the fact that we are buying all this foreign oil at ridiculously high prices.

We should not take an action that essentially would be cutting off our nose to spite our face by saying: We are going to sue you if you don't do what we want relative to our laws and relative to cartels. Their laws don't bar cartels. They don't have to invest in the United States. I suspect they would limit their investment through their sovereign funds in the United States were we to take that action. That would not produce more energy for us.

The second proposal is to take a percentage of the profits of our domestic oil companies because, I guess we believe that as a Congress we can spend those profits better than those domestic oil companies. First off, those domestic oil companies don't make up the majority of producers in this world. In fact, only 6 percent of the proven reserves in the world are controlled by publicly held companies. The rest are controlled by companies that are managed by governments, the Saudi company being the biggest. But you have Venezuelan companies, Chinese companies, and the Russians, and you have a series of nations, of course, that have control over their supply.

So supply is not controlled by these private companies. And their profit, if we take it as a government, is not going to give us the capacity to produce more oil. We are going to take that money as a Congress and spend it on whatever interest group we think is important today. We will probably spend it on some program to help out people who are trying to buy their energy. But that is not going to produce more oil. That is not going to produce more exploration.

Remember, these companies are owned by Americans, for the most part. They are owned by Americans through pension funds. People who work for unions own these companies, people who work in businesses own these companies, people who have a job and have a 401(k) own these companies. The profits flow back to two different actions: One, exploration; or two, dividends--dividends running to American citizens, most of whom are retired, or many of whom are retired. So to simply say, well, their profits are too high and we are going to grab them as a government and spend that money because we can spend that money more efficiently and better than those companies--because they are evil, they are oil companies--is, again, cutting off our nose to spite our face.

It won't produce more exploration. It will produce less. It will take from Americans who have invested in those companies through their pension funds and their dividends. That makes no sense.

The things that make sense are: More conservation, more renewables--both of which I strongly support--and also more exploration in the United States. Produce more American energy--clean energy, hopefully. One way to do that, of course, is to expand nuclear power. But another way is to look for reserves where we have reserves, and where we can look for them in an environmentally sound way. One way is to take a look at oil shale. That is a great opportunity. We have more oil reserves in oil shale, three times more in oil reserves in oil shale, than Saudi Arabia has in plain oil. We have over 2 trillion barrels of reserves in oil shale, and we are not using it. We are not using it because it is on public lands and we have been barred by the activists and the environmental communities from using that oil. Remember, the way you produce that oil is underground. You don't produce it aboveground. So there is no destruction of the surface area of the ground.

Secondly, there is the fact that we have proven we know how to drill. We know how to explore in the ocean. The greatest example of that was Katrina. Here is the largest hurricane to hit the American shore in history, as far as damage is concerned--it wiped out one of our great cities, New Orleans, then came right up the Gulf of Mexico--and not a barrel of oil was spilled, even though the Gulf of Mexico is filled with drilling rigs. Why is that? Because we know what we are doing. We have the technology to drill and to produce from the Outer Continental Shelf in an environmentally sound and safe way, even in the face of a force 5 hurricane.

So of all that has been proposed here and that makes sense is let's look for other places where we can produce oil, American oil, off our shores, if States agree to it. That is the caveat: If a State agrees to it. Now, if Florida doesn't want to do it, that is their choice. Louisiana does want to do it, Mississippi does want to do it, Alabama does want to do it. Virginia wants to do it, but Virginia is barred from doing it because we have a Federal law saying even if Virginia wants to do it, they can't do it. That makes no sense.

Why should we be buying oil from people who hate us, who want to destroy our civilization and do us in, when we can produce it off of States, where the States agree, where the people of those States agree they are willing to explore because they know it can be done in an environmentally safe and sound way? That makes no sense.

I am sorry to get off on that tangent, but I had to, because this is a topic of current concern and the Senator from Florida raised a number of issues on this question.

To return to the issue at hand, however, the bill brought to the floor by Senators Dodd and Shelby, whom I just finished praising for their excellent effort here--as a conservative, it is not my inclination to have the Government step into the marketplace. In fact, that is anathema to me in most instances, and I am fairly resistant to it. I think I have as good a record on trying to keep the Government out of unnecessary interference in the marketplace as anyone else around here, and certainly have a very conservative fiscal record. But I have an experience here which I think lends some knowledge on what is happening and what we need to do.

I was Governor of the State of New Hampshire in the late 1980s and early 1990s when we went through a massive real estate bubble meltdown. It was incredibly destructive to the Southwest and to New England. The Southwest's was caused by a large amount of fraud, regrettably, and in New England it was caused by excessive speculation, especially in commercial real estate development. As a result of that, we had seven major banks in New Hampshire in late 1989 and five of them went bankrupt. The other two would have gone under, except they were owned by larger banks from outside of New Hampshire that were able to come in and give them the capital to sustain themselves. Numerous other smaller banks, community banks, went under. Lending contracted, people's home values, as a result of the bubble bursting, dropped by between 30 and 50 percent. It was a horrific time for our citizenry in New England, and it was an incredibly difficult time economically.

How did we get out of this? There were a lot of things done, but one of the key things that was done was the Resolution Trust Corporation. The leadership of the FDIC at that time, led by Bill Seidman, and the Federal Government came in and intervened. It essentially came in underneath the failed banks and said they would be there to backstop the deposits and liquidate the assets so they became marketable again and so the economy could move forward.

When you have a contraction such as that, which is what we are seeing in our market today as a result of the subprime meltdown in States such as Florida, Arizona, and California--and it is spreading, regrettably, to some instruments that weren't subprime--when you have a meltdown such as that, what happens is the banking and the lending industry of the Nation start to have to rebuild their capital quickly because they are taking huge losses. And the only place a bank can rebuild its capital is by calling in essentially good loans. So even though somebody might have a good idea and know how to make a business work and have a real estate proposal which makes sense and is going to have a positive cashflow, it is extremely difficult for them to get a loan--extremely difficult--because the banks are trying to build their capital and they are not lending. That is what we are seeing today. We are seeing that type of contraction.

On top of that, of course, we have the meltdown. We have the major investment house of Bear Stearns, which was reacted to appropriately by the Federal Reserve, by opening the window so other investment houses would be able to have resources, but we still have this serious issue of liquidity. That is what it all comes down to. It comes down to the ability of the lender to be able to take the loan and sell it and move it in the marketplace so they can actually lend some more money by taking money in and by selling the loans which they have on their books. That is what it comes down to. What we have today is a market that is contracting because they do not have that capacity. The lenders do not have that capacity.

That being the case, what is the role of the Federal Government? I am hesitant to have the Federal Government step into this, beyond what it has already done, but I think setting up a backstop is appropriate, and that is essentially what the bill that is brought to us by Senators Dodd and Shelby does today.

First, I congratulate them for the regulatory reform they put in for Fannie Mae and Freddie Mac, very important reform. But going to the part which is the essence of the bill beyond the reform, which is very important, the question of expanding FHA authority to basically become a backstop for these mortgages and basically a force for making these mortgages liquid is the key element of this bill.

As I understand it--and, again, I haven't been able to read the whole bill--the way it basically works is for these loans, for the FHA to step in and insure refinanced mortgages, the loans first have to be written down to 90 percent of the market value of the house; second, the home has to be owner occupied, so it is not a speculative home; and third, all the secondary liens that might be on the property have to be cleared so it is basically the single underlying primary first mortgage that is being underwritten. That is the proposal as I understand it.

The possible effect of this, in my opinion, will be that the lenders, the banks specifically, the people who have made these insured mortgages, may be able to move these mortgages off their books, unlike mortgages which are not moving right now, in a way which will free up the marketplace and allow them to relend money to other people who want to buy a home.

Equally important, of course, is that the homeowners, who find themselves caught in this subprime web of having taken on a mortgage which they couldn't afford because the adjustment in the ARM went up so quickly and so radically in an unexpected way, will be able to stay in their home and make their payments, if they have the capacity to do that. That should be our goal. Our goal shouldn't be to have foreclosures occurring all across this country. Our goal should be to keep the homeowners in their homes, those who do have the wherewithal to pay for their mortgages, as long as their mortgage is properly priced. That is what this bill will accomplish in many ways.

What is the cost of this bill? That is of primary concern for me, and I know it is a primary concern for Senator Shelby, because he is probably even more of a skinflint than I am around here.

CBO is saying the ability of people to take advantage of this may be limited because of the fact you have to clear all the second liens off the home, so there may not be as much use of it as one might think. But I think there will be more use of this option than CBO thinks, because the lender and the borrower will see it as an opportunity for the borrower to stay in the home and for the lender to get the loan and move it off the books so they can get more liquidity and rebuild their capital.

I think that will be the outcome of this language, should it go into place: A lot of homes will be saved.

Secondly, as I understand it, a lot of the money to support this is going to come out of Fannie Mae and Freddie Mac. I may be wrong about that, but I think that is the way it works. That is appropriate, because Fannie Mae and Freddie Mac have an unfair playing field here. They get a tilted rate benefit because of the fact they are perceived as being backed up by the Federal Government, even though they aren't. So this will level the playing field a little bit, and it will take resources which aren't coming into the Treasury anyway to support it.

Thirdly, and I think this is probably the most important part, the economic slowdown we are in today I believe will be relieved to some degree because there will be a mechanism in place. It is not a magic wand. It is not the absolute full response to the problem. In fact, there is only one end of the pyramid that needs to be built here. But it is a response which will help the economy recover quicker and with more energy.

I opposed the original stimulus package we passed, and I opposed the housing bill that was on the floor earlier this year because I didn't think either one was going to do a heck of a lot to help the economy move forward. This bill, however, if it is in the form that I think it is in, does something to accomplish that goal. It will help the economy because it will free up the market. It will make the market more liquid, which is what we need, and it will also give people the capacity to avoid foreclosure, which is very important to the mindset and the psychology of the economy.

I do think this will be part of the effort to raise the economy of this country as we continue in this rather significant--and I do not think we are out of the woods yet--severe slowdown in the area, especially, of the financial industries.

Again, I hope I understand the bill. I am not sure I fully understand it. I wouldn't claim I do. But I think I understand its concept, its purpose, and I agree with its concept and its purpose, and I congratulate the leadership of the Banking Committee.

I yield the floor.

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