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Mr. DURBIN. Madam President, America is facing a crisis, and this is what it looks like: Two buildings next to one another, one a well-kept home; next door, a foreclosed property, boarded up, vacant, vandalized. Sadly, this is a crisis which is affecting every community in America. I have seen it in the streets of Chicago. I have seen it in suburban towns. I have seen it in my downstate communities.
Madam President, 8.1 million homes are facing foreclosure in America today. That isn't my estimate, it is the estimate of Moody's. They are supposed to be good predictors of our economy. What does 8.1 million foreclosed homes represent? One out of every six home mortgages in America in foreclosure--one out of every six. It is a reality. It is a reality that affects the five out of six, our homes where we continue to make our mortgage payments and wonder what the problem is. Why is the value of my home going down? I am making the payments. It is going down because, sadly, somewhere on your block is another home in foreclosure, boarded up, an eyesore at best, a haven for criminal activity at worst--a reality that continues to grow.
Two years ago, before we even started in on this crisis as we know it, I proposed a change in the bankruptcy law, a change which I think could have forestalled this crisis we know today. Along the way, there has been resistance to this change. By whom? The banks that brought us this crisis in America have resisted this change to do something about mortgage foreclosure. That is a fact.
Last year, I offered this amendment to change the bankruptcy law, and the banking community said: Totally unnecessary; we don't need this kind of a change. This mortgage foreclosure is not going to be all that bad.
In fact, the estimates were of only 2 million homes in foreclosure last year from our friends in the banking community, the so-called experts. Here we are a year later. The estimate is now up to 8 million homes in foreclosure.
Who are these people facing foreclosure? Were they speculators and investors who were buying up properties and they thought that maybe they would double in value and they could quickly sell them? There may be a handful of those folks out there. By and large, they are families--families who are trying to keep it together, under a roof, the most important asset they own, their home, trying to make payments when they discovered that the mortgage that was peddled to them by the same banking industry and mortgage banking industry turned out to be a fraud on its face.
We remember the heyday of all this activity. They would tell people: Come on in. Call this 800 number. We can let you finance and refinance. We have a deal for you.
People would show up at these mortgage brokers, and they would say: How much money do you make?
The guy would say: So many thousand dollars.
They would say: Oh, you are perfect. We have just the mortgage that will put you in this home, keep you in this home, or let you borrow money on this home.
The person would say: Do you need some proof? Do you need some documentation?
No, no, no, your word is good enough. No-doc mortgages.
In no time at all, they would be sitting at a closing. I have been to quite a few of them myself as a lawyer and buying a few properties in my own life. They give them a stack of papers--you know what I am talking about, a stack of papers--and they would turn the corners and say: Just keep signing it. Sign it.
What is it?
Oh, government forms, standard boilerplate. I could read it to you, but we want to get out of here in the next half hour. Keep signing, you keep signing.
At the end of the day, they say: In 60 days, first payment. You are going to love this place.
Out the door, and in comes another couple. That is what it was all about.
Then what happened 12 months later, 2 years later? That mystery mortgage kind of exploded in their face. All of a sudden, they were facing terms in that mortgage that were absolutely incomprehensible and unsustainable. They could not make the payments on it. The interest rates were going up too high. They called them subprime mortgages. That was the initial onslaught of this housing crisis in America. But then it grew into a lot of other mortgages too.
I told the story before--and it is worth repeating--of the flight attendant I met on a United flight flying from Washington to Chicago. After she did her chores on the plane and there was a quiet moment, she came and knelt down in the aisle next to me.
Senator, I have a problem. I am a single mom with three kids. I live out in the suburbs. I have worked for this airline for 20 years. I have been a good employee, always show up for work. I take it seriously. I have my little home out there, but I have a problem. My interest rate on my mortgage is too high. I need to take advantage of lower interest rates that are now available. If I can get down to a lower interest rate, a lower monthly payment, I can keep my home. But if I don't, I am going to lose it. I can't make ends meet. I can't keep it together. What am I supposed to do? They say I am underwater?
Do you know what that means? The value of your home is less than the mortgage principal today. It has happened to a lot of people.
Do you know what I told her: Sadly, I don't have an answer for you. If that bank will not bring you in, sit you down at a desk, and renegotiate the terms of that mortgage, you are about to go through the most painful, torturous path in your life. You are forced into default on your mortgage, you cannot make the payments, you become delinquent, receive the notice of foreclosure, and then it just goes from bad to worse.
Madam President, 8 million American stories, 8 million foreclosures. What we are offering today is the only proposal before the Senate which gives us a chance to do something about this crisis. It is the only thing that can change the dynamic which continues to eat at the heart of our economy which adds foreclosure upon foreclosure and completely paralyzes the housing industry in America. That is at the heart of this recession. That was the canary in the coal mine. That is what triggered where we are today, and it is still there and getting worse.
I sat down 2 years ago with the banking industry and said to them: We have to do something.
I can recall conversations with Henry Paulson from Wall Street, Secretary of the Treasury under President George W. Bush, where I said to Mr. Paulson: I know you wanted to save the banks, but how about saving the homeowners?
What are we going to do about the mortgage foreclosure? Well, we will get to that later; or, it is not a problem. He kept putting me off and putting me off. He put me off, but he didn't put off the crisis.
Why is it in this country, in America, that we can find hundreds of billions of taxpayers' dollars from hard-working people all over the United States to come to the rescue of bad banking decisions, rotten investments, mortgages that were fraudulent on their face, but can't summon the political will to do something about 8 million families in America who are going to face foreclosure? That is where we are.
When I sat down with the banks, I said: I will work with you. Let us find a reasonable way so we can bring people to the table--such as that flight attendant--and find a way to work it through. Because at the end of the day, a foreclosure isn't good for anyone. A family loses their home, a neighborhood is ravaged by vacant property, the people next door lose the value of their home, the bank spends $50,000, at a minimum, for expenses in a foreclosure, and then 99 percent of these boarded-up buildings, these foreclosed homes, are the property of a bank. How much time is that bank spending on that property? How much worry do they have about the value of the neighbor's home? The answer is none. Banks aren't in the business of putting in windows and establishing security and cutting the grass and making the property look good. They move money around. But now they are becoming property owners of the most blighted properties in America.
Some banks are walking away from it, incidentally. The banks are walking away from the foreclosed property. I sat down with them and said: How can this be good for a bank? How can this be good for a family? How can this be good for the Nation? Let's sit down and work together. But I come today to the floor to tell you that despite months and months of heroic effort by my staff--Brad McConnell, who is here and who has worked tirelessly on this issue--and my own efforts to reach out to the banking community, only one bank is supporting this amendment to do something about foreclosure in America--one bank: Citigroup.
I can't tell you how many of these bankers have walked away. The American Bankers Association has been terrible--terrible. They will not even participate in a negotiation on dealing with this foreclosure crisis. The Community Bankers of America, a group I have respected over the years because they are closer to the people; they are the hometown banks--have walked away as well. They are not interested in this conversation, they say. The credit unions? Well, I will give them some credit. They did try. But in the end, they walked away as well. The big banks--JPMorgan Chase, you see them all over the United States--they were at the table until last week and then decided: No, we are going to walk away too. We are not interested in this conversation. Wells Fargo, Bank of America, and the list goes on and on.
If any of these names sound familiar, it is because they are surviving today due to taxpayer dollars. And you know what they say about these poor people who have lost their homes? It was a bad business judgment and people have to pay for their bad business judgments. Really? How many of these bankers paid for their bad business judgments, with their multimillion dollar bonuses, with the rescues we have provided from American taxpayers--hard-earned tax dollars sent their way? The fact is we have been kind to these bankers who have brought us into this crisis. Yet they are literally shunning and stiff-arming the people who are facing foreclosure. These banks that are too big to fail say that 8 million Americans facing foreclosure are too little to count in our political process, and they have walked out the door.
Well, I want to tell you, this amendment I am offering can save the homes of 1.7 million families. I wish we could save more, but the fact is we have this opportunity before us, and I think it is something we shouldn't ignore and we
should support. Some Members of the Senate voted against my amendment a year ago. I understand that. I heard them. They said: You have to sit with the banks and see if you can work something out. Well, we did, until they walked away.
What we offer today is significantly different than what we offered a year ago. We literally give to the banks control over whether a family in foreclosure can go into bankruptcy. We say that anybody facing foreclosure--who is delinquent for at least 60 days on a home that is valued at no more than $729,000, with a mortgage that was written no later than 2008--has to show up at the bank at least 45 days before they file bankruptcy and present all the economic information, all the financial documents the bank would need for a mortgage--proof of income, indication of net worth. If the bank at that point offers them a renegotiated mortgage--a mortgage which will basically allow them to stay in the home, that reduces the borrower's mortgage debt-to-income ratio to 31 percent, which is the standard the administration is talking about, or offers hope for home refinancing--another program--and the person facing foreclosure does not take that offer, then that same family in foreclosure cannot use the bankruptcy court to rewrite the mortgage. So in other words, the banks ultimately have the key to the courthouse. If they make the offer and it is turned down, that is the end of the story.
What happens if they do not make the offer? Under this law, we would change the Bankruptcy Code as follows: Under the current bankruptcy law, if you are deep in debt and facing foreclosure, and you own several pieces of real estate--your home, a vacation condo in Florida, a vacation condo in Aspen, CO, and you are facing foreclosure on all three properties because of economic problems--you can walk into that bankruptcy court and the judge can say we will renegotiate the terms of the mortgage on the Aspen, CO, property--we will reduce the principal of the mortgage to the fair market value, the interest rate will be the current interest rate, we will add a little to it, and so forth and so on. The bankruptcy judge has that power for the Florida property and for the Colorado property. But the law prohibits the bankruptcy court from rewriting the terms of the mortgage of a person's home. Why? Why does that make any sense? If the bankruptcy court can rewrite the mortgage on your vacation condos, your farm, or your ranch, why can't they do it for your home? That is what this bill does. It gives the bankruptcy court that power. And in creating that power, it says to the bankers: Get serious.
The voluntary plans we have had for refinancing mortgages in foreclosure across America have been an abject failure. We have to have an opportunity here for the bankruptcy court to step in and make a difference, and that is what we are trying to achieve with this.
I know my colleague, the Senator from California, is here on the floor, and I will yield to her in a moment. I have to leave the Chamber myself. But that is what we are proposing today. It is an amendment which we have worked on long and hard. It is an amendment which I think should be looked at in honest terms. My goal is not to put more people in bankruptcy court. My goal is to avoid it. Put them at the table with the banker at least 45 days in advance, avoid the bankruptcy court, avoid the foreclosure, avoid the boarded-up and burned-out building that happens to be right next door to the home you have worked so hard to keep and to maintain.
The Mortgage Bankers Association has claimed, in front of the Senate Judiciary Committee, that this is going to add cost to everybody's mortgage if in fact some people can turn to bankruptcy court. Let me first say that future borrowers aren't even eligible for this bankruptcy assistance. It ends as of January 1, 2009. Future mortgages, future foreclosures aren't even affected by it. It has an ending date.
We also have a quote--and I don't have time to read in detail here--from Adam Levitin, who has analyzed this and says the argument that interest rates will go up because of this provision is plain wrong.
Secondly, they argue that changing the Bankruptcy Code will cause uncertainty in the market. The American Bankers Association says it will add risk. I will tell you this: If you want uncertainty in the market, keep the foreclosures coming, one after another. Let them hit your neighborhood. Uncertainty about your home and its value and whether you can sell it is the reality of what they will face.
They say bankruptcy judges shouldn't be allowed to break the sanctity of the contract. Before we argue about the sanctity of a no-doc mortgage, before we argue about some of the predatory lending practices that led to this mess, let me tell you that the bankruptcy court takes on contracts every single day. That is the nature of the bankruptcy court. To me, that is an argument which goes nowhere.
They argue that allowing borrowers to modify mortgages in bankruptcy would shield them from the consequences of poor decisions. They call it the ``moral hazard.'' In other words, take your medicine, America. You made a bad mortgage, you pay the price. That didn't apply when it came to bailing out these banks when we were asked for $700 billion to make up for the mistakes of these banks. Where is the moral hazard there, as they run off with their parachutes and their bonuses? I don't buy that argument whatsoever.
Finally, they argue that restricting this amendment to subprime and exotic loans is a better way to do it. Well, I can tell you, we know that isn't going to work. There are too many mortgages now in peril, way beyond the original subprime mortgages. And how do we explain to our constituents that we are providing special assistance to borrowers who took out a risky loan, such as a subprime, and ignoring those who have been trapped in other mortgages that create a disaster?
I am going to yield the floor to my colleague from California, and thank her for coming, and I want to tell you something: Her State has been hit harder than any other State. You ought to see what has happened in portions of California. She knows this issue personally, and I thank her, and I yield the floor to Senator Boxer.
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Mr. DURBIN. Madam President, I thank the Senators from Oregon and New Mexico, as well as the Senator from New York and the Senator from Connecticut, for speaking on behalf of my amendment.
I would like to make a unanimous consent request that has been cleared by the other side: that of the 4 hours that have been set aside for this debate, the last 30 minutes be preserved and equally divided between the two sides, with 15 minutes to a side; under the custom of the Senate, if we go into quorum calls, time is taken equally from both sides. We have actively spoken on this amendment on our side, and no one has appeared yet, though I think they will soon, on the other side.
So I ask unanimous consent that notwithstanding the usual tradition of quorum calls taking the remaining time, dividing it by half, that the last 30 minutes be insulated and protected from that, and it be allocated 15 minutes to a side.
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Mr. DURBIN. Mr. President, I wish to thank my colleague from Iowa for his kind and supportive statement about this pending amendment.
For the information of my colleagues, I have spoken to the Republican cloakroom. I believe this has been cleared, and if it hasn't, I will subject it to further modification. We have some 30 minutes remaining in the debate on this amendment that is pending, and it is to be evenly divided, 15 minutes to each side. So for the information of my colleagues, we expect the vote to be in the neighborhood, in the range of 2:45, if they want to make their plans accordingly, unless the Republican side yields back the 15 minutes they have remaining, which is their right, but they are certainly not compelled to do it. So I am not asking for a consent. I hope I am just explaining what the current consent order will lead us to.
Mr. President, I wish to show America what this debate is all about. It is about this: This picture was taken on Capitol Hill. Two adjoining homes on Capitol Hill, No. 822 on Capitol Hill, a neatly kept home--flower box, some work with some shrubbery here, nicely painted, obviously a lot of pride of ownership. Look next door. What do we find? A foreclosed property on Capitol Hill. This person is making his mortgage payment every month faithfully. This person is foreclosed on. The property is in the hands of a bank.
This property is deteriorating. As it deteriorates, so does the value of the good-looking home right next door.
That is not an unusual story. It is a story that will be repeated 8 million times over the next several years because that is what Moody's estimates will be the number of mortgages foreclosed upon in America if we do nothing--8 million mortgage foreclosures. Out of all the home mortgages in America, it means that one out of six will be foreclosed upon.
This is an American tragedy coming to your neighborhood, coming to your home, coming to what may be the most important asset you have on Earth. It does not have to happen. We can do things now to make a difference. We have waited patiently for the banking industry to show leadership on this issue for years. They have failed. There has been one excuse after another why they cannot step in and help people renegotiate their mortgages.
Foreclosure is not a day at the beach for a bank. It costs them up to $50,000, sometimes more. They end up owning property, which is not what most bankers go to business school to learn how to do, and the property deteriorates, the value deteriorates, and they are stuck with it.
We have said to them: Let's find a way out of this that is reasonable.
Let's give to those facing mortgage foreclosure a last chance in bankruptcy court to have the judge try to adjust the value of the principal of the mortgage no lower than the fair market value of the home--that is the best that any bank could ever hope for, if they could ever sell this property--no lower than the fair market value of the home and an interest rate that is competitive with market rates. If the person in bankruptcy has enough income to make the payment, give them that second chance. The banks say: No, never, even though that kind of a power in bankruptcy court is available for every other piece of real estate you own--the farms Senator Harkin of Iowa spoke to, ranches, vacation condos. It does not apply to a person's home. Why? Why wouldn't we apply it to a person's home? That is what the Durbin amendment does.
We said to our friends in the banking community: We are going to give you the last word, and here is what we are going to tell you: Anybody who wants to go to bankruptcy court to have their mortgage rewritten by the bankruptcy court first has to go back to the bank where they have their mortgage at least 45 days in advance of filing bankruptcy and put all of their documentation on the table as to their income and their net worth. If the bank then makes them an offer of a mortgage that has a mortgage-to-income ratio of 31 percent, which is the standard we are using now, if the bank makes that offer, whether the borrower takes it or not, the bank is protected, the person can't go to bankruptcy court. The bank has the last word in terms of whether anyone can even raise this issue in bankruptcy.
I have been working on this for 2 years. By Senate standards, that is a heartbeat. In this place, you better get ready to hunker down and fight for months and years at a time if it is an important issue, and I still am. But for 2 years, we have been working with the banks trying to come up with a reasonable way to avoid this tragedy in neighborhoods across America. They are the ones who came up with the 45 days before filing for bankruptcy. They wanted us to restrict it so it is not in the future, it only applies to existing mortgages. We said OK. They wanted to put a limitation on the value of the home, $729,000; that is the most you can consider to refinance. We said OK. They wanted to make sure a person had been delinquent at least 60 days before they could even consider bankruptcy. We said OK. We did all of these things because the banking industry said that way people will not be doing irresponsible things and taking advantage. We did them all. We made all these concessions. I do not agree with some of them, but that is the nature of compromise, that is the nature of the legislative process.
What happened at the end of the day after we made all these concessions? I will tell you what happened. The bankers got up and walked out. That is right. The American Banking Association, the community bankers, the major banks, such as JPMorgan Chase, Wells Fargo, Bank of America, and the credit unions walked out. They want nothing. They want no change. Only Citigroup said: We will stick with you; we think it is reasonable. They are the only ones.
If you ask them why they are opposing this effort to try to renegotiate a mortgage to keep a family in their home to avoid this mess, they say: Senator, you don't understand. It is about the sanctity of the mortgage contract.
Really? We know how some of these mortgages came to be. They came to be as a result of at least misleading the borrowers, if not outright fraud.
They used to call these mortgages no-doc mortgages. Do you know what that means? It means they were giving mortgages to people without any proof of income or net worth. If you dialed that 800 number on the television screen, a fellow would show up, set up your closing in 48 hours, and get it done. Just keep signing those papers, incidentally, until you get to the bottom of the pile and everything is taken care of. Six months, 1 year, 2 years later, that mortgage exploded in the faces of these homeowners.
Then there were others. They didn't get suckered into these subprime mortgages; they were folks just making their payments, everything was fine. Then the bottom fell out of the real estate market.
What is your home worth today? I can tell you what it is in Springfield, IL, my home I have been in for 30 years. The value of my home is down at least 20 percent. Did I miss a mortgage payment? No, but it is the state of the real estate market. Lucky for me and my wife, we paid down enough on our mortgage so it is no big problem. For some people, they went underwater. The value of the home is lower than the principal of the mortgage they were paying off. So their credit rating disintegrated as a result of that. The value of the home here, well kept and well painted, goes down because of a foreclosed home next door, and the credit rating of this homeowner deteriorates and disintegrates to the point where they cannot refinance their home. That is the reality. That is the catch-22.
The banks are arguing the sanctity of the mortgage contract. I have news for them. The bankruptcy court is all about looking at contracts. That is what they do anyway. When we reformed the Bankruptcy Code a few years ago, I didn't hear any argument about the sanctity of the contract when we changed the rules of the game. In that case, the financial institutions liked changing the rules, liked changing the contract. Now they are for the sanctity of the contract.
One other argument I think takes the cake: Senator, you don't understand the moral hazard here. People have to be held responsible for their wrongdoing. If you make a mistake, darn it, you have to pay the price. That is what America is all about.
Really, Mr. Banker on Wall Street, that is what America is all about? What price did Wall Street pay for their miserable decisions creating rotten portfolios, destroying the credit of America and its businesses? Oh, they paid a pretty heavy price--hundreds of billions of dollars of taxpayers' money sent to them to bail them out, to put them back in business, even to fund executive bonuses for those guilty of mismanagement. Moral hazard? How can they argue that with a straight face? They do.
Let me show you what this means in some of the States across the United States if the Durbin amendment would pass.
Take a look at the State of Florida. This State is really hard hit; 206,000 homes would be saved from foreclosure with the Durbin amendment--206,000 in the State of Florida. For the rest of the homeowners in the State, $36 billion in value in their homes would be protected because we saved these homes.
Take a look at the State of Ohio. Almost 44,000 homes will be saved by the Durbin amendment; $1.5 billion in real estate values saved for the people who live next door and on the same block.
The State of Pennsylvania: 37,000 homes saved; $3.3 billion in real estate value protected.
The State of Maine, a small State but almost 5,000 homeowners would not face foreclosure because of the Durbin amendment, and $104 million in value would be protected for homeowners across the State of Maine.
In the State of Missouri, 22,000 homes saved; $993 million in value.
I want to show a chart from the city of Chicago, which I am proud to represent. It looks as if it has the measles, doesn't it? This chart shows the foreclosures in 2008, the filings in the city of Chicago. Have you ever flown into Midway Airport and looked down at the little houses, the little blond, brick bungalows? They have been around at least since World War II. Good, hard-working families are in those homes, starter homes for some, above-ground pools in the backyard, nice little flowers planted in the front yard, no trash out in the streets. These people are, by and large, ethnic folks, immigrant folks. They value that home. It is the best thing they have going for them. In that ZIP Code right around Midway Airport, there is not a single block in that ZIP Code that does not have a foreclosed home. Not one. And you tell me what that means to the folks living next door. I know what it means. It means that the value of their home just went down, and if the foreclosed home is not watched carefully, even worse things can occur.
Here is what it comes down to. This is our chance to stand up for the folks across America who send us here to be their voice. They are not lucky enough to have the American Bankers Association as their lobby. They are not lucky enough to have the community bankers as their lobby. They are not lucky enough to have the credit unions as their lobby. What we are talking about here are people who do not have any paid lobbyists. What they are counting on is Senators in this Chamber who will stand up for them.
The bankers don't want this. They hate the Durbin amendment like the devil hates holy water. That was an old saying, which I particularly like, from Dale Bumpers, who served from the State of Arkansas. They hate this amendment so much, so they negotiated for weeks and at the end of it pulled the plug--we are going to walk away. We are going to tell all of our friends, all of our loyal friends to vote no.
I hope the homeowners across America have more friends here than the American Bankers Association. We are going to get a test vote in a few minutes to find out. I need 60 votes to win. That is not easy, I know it. I don't know how many, if any, votes will come from the other side of the aisle. I have spoken to a few over there, even some on this side of the aisle, one who has spoken out against this proposal, and that is his right to do. To me, at the end of the day, this is a real test as to where we are going in this country.
Next up after mortgages is credit cards. Next week, the bankers can come in and see how much might and power they have in the Senate when it comes to credit card reform.
The question we are going to face is whether this Senate is going to listen to the families facing foreclosure, the families facing job loss and bills they cannot pay or whether they are going to listen to the American Bankers Association, which has folded its arms and walked out of the room. I hope we have the courage to stand up to them. I hope this is the beginning of a new day in the Senate, a new dialog in the Senate that says to bankers across America: Your business-as-usual has put us in a terrible mess, and we are not going to allow that to continue. We want America to be strong, but if it is going to be strong, you should be respectful, Mr. Banker, of the people who live in the communities where your banks are located. You should be respectful of those hard-working families who are doing their best to make ends meet in the toughest economic recession they have ever seen. You should be respectful of the people you want to sign up for checking and savings accounts and make sure they have decent neighborhoods to live in. Show a little bit of loyalty to this great Nation instead of just to your bottom line when it comes to profitability. Take a little bit of consideration of what it takes to make America strong because when this country is strong, when families can stay in their homes, take pride in their homes, and our communities are better, guess what. You are going to do better as a banker. That is what will happen at the end of the day.
When I offered this amendment last year, they said: Not a big problem; there are only 2 million foreclosures coming up. They were wrong. It turned out to be 8 million. And if the bankers prevail today and we cannot get something through conference committee to deal with this issue, I will be back. I am not going to quit on this issue. Sadly, the next time I get up to speak, whenever that might be, if we are not successful today, it may not be 8 million, it may be 10 million or 12 million.
At some point, the Senators in this Chamber will decide that the bankers should not write the agenda for the Senate. At some point, the people in this Chamber will decide that the people we represent are not the folks working in the big banks but the folks struggling to make a living and struggling to keep a decent home. That is the test.
I hope my colleagues will join me in adopting the Durbin amendment.
Mr. President, I ask unanimous consent that at 2:45 p.m. today, the Senate proceed to vote in relation to Durbin amendment No. 1014 and that any provisions of a previous order relating to this amendment remain in effect.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DURBIN. Mr. President, 1.7 million is the number of families that we will either help stay in their homes or allow to lose their homes and be thrown on to the street.
Tomorrow the Senate will have the opportunity to vote for an amendment to the Helping Families Save Their Homes Act that would enable 1.7 million families to avoid foreclosure.
My amendment would make a small change to the bankruptcy code to give these families a little bit of leverage as they work with their lenders to create a modified mortgage that they can afford.
When we can avoid foreclosures and families can stay in their homes, everyone wins--the families, their neighbors, their lenders, and the government. We can save 1.7 million homes with one vote.
I have come to the floor each day this week to talk about the scale of the problem and what we believe we should do about it, in very general terms.
Now I would like to get specific.
Let me be clear: this is a very different amendment to the bankruptcy code than my colleagues have seen before.
This amendment would integrate assistance in bankruptcy to the two primary foreclosure prevention efforts already underway: the Obama administration's Homeowner Assistance and Stability Plan and the congressionally created Hope for Homeowners refinancing program which the other title of this bill will greatly improve.
Our objective is to keep as many families in their homes as we can. Ideally none of these families would have to go through the painful process of a chapter 13 bankruptcy.
So this amendment would help only troubled homeowners who could not find other assistance outside of bankruptcy first.
Let me put it another way: mortgage servicers would be given full veto power over which of their borrowers could go to bankruptcy--they would be given the keys to the courthouse door.
All a servicer would have to do to block a borrower from going to bankruptcy for a mortgage modification would be to offer the borrower a modification that conforms to the standards of the Homeowner Affordability and Stability Plan or Hope for Homeowners--regardless of whether the borrower accepts the offer or not.
For banks and credit unions that aggressively offer modifications to borrowers who are in trouble, the total number of their borrowers who will be eligible for bankruptcy assistance will be exactly zero.
Specifically if a servicer offers a loan modification that reduces the borrower's mortgage debt-to-income ratio to 31 percent--the same as the Housing Affordability and Stability Plan--or if a servicer offers Hope for Homeowners refinancing, then that borrower could not run to a judge looking for a better deal through a cramdown. For those borrowers that the servicer chooses not to modify voluntarily and that must file for bankruptcy, half of any cramdown would be returned to the servicer if the borrower resells the home while still in bankruptcy.
For these borrowers that the servicer chooses not to help, the courts would be constrained as follows: The judge could only reduce the loan principal to fair market value, which is much more than the lender would collect if the home were to be sold in foreclosure. The judge could only reduce the interest rate to the conventional rate plus a reasonable premium for risk, which at the moment would equal around 6.5 percent to 7 percent.
And the judge could only lengthen the term to the longer of 40 years, reduced by the period for which the mortgage has been outstanding or the remaining term of the mortgage.
There are many further restrictions. Loans originated after 2008 are not eligible for bankruptcy assistance.
Loans that are larger than the largest conforming loan limit are not eligible for bankruptcy assistance. Loans that are not 60 days delinquent are not eligible for bankruptcy assistance. Loans that are not in foreclosure are not eligible for bankruptcy. And the whole amendment would sunset at the end of 2012 when the Housing Affordability and Stability Plan expires.
The banks hold the keys to the courthouse. And, even those borrowers the banks refuse to help can only receive assistance that still makes the banks far more money than the only other alternative: foreclosure.
Yet even with all of these restrictions, Mark Zandi from Moody's Economy.com estimates that this change would save 1.7 million families from foreclosure. Why? Because for most lenders, the Obama administration's foreclosure prevention plan is voluntary. This change to the bankruptcy code would encourage lenders to participate, because offering these modifications allows lenders to effectively veto a modification in bankruptcy. That is a large part of why the President supports this provision, and why he included it as a key element in his plan.
This amendment would prevent foreclosures, which would help us find the bottom in the housing market, which would help the housing markets turn around more quickly, which would help the entire economy start moving again. Perhaps best of all, this amendment wouldn't cost the taxpayers a penny.
Even though this new proposal is airtight in protecting lenders interests, the ideologues in the mortgage industry--outfits like the Mortgage Bankers Association, the Financial Services Roundtable, the American Bankers Association, the Independent Community Bankers Association, and the National Association of Federal Credit Unions--still oppose providing this help to troubled homeowners and the economy at large.
They continue to regurgitate the same tired talking points that have been refuted over and again by the facts.
They seem to repeat the same six myths. Myth No. 1: Allowing troubled homeowners to receive mortgage assistance in bankruptcy will lead to higher borrowing costs for future borrowers. Reality: Although the Mortgage Bankers Association has claimed in front of the Senate Judiciary Committee that ``if this legislation goes through, we will be putting a permanent tax on everybody that buys a house going forward of $295 per month,'' there are several reasons why this argument makes no sense.
First, future borrowers aren't eligible for this bankruptcy assistance, so there is no reason why future borrowers should have to pay more to compensate lenders for a risk that doesn't exist.
Second, only borrowers for which foreclosure is the only other alternative are eligible for this bankruptcy assistance. Foreclosures almost always cost banks more than loan modifications that keep families paying each month. No extra costs are being borne by the banks that they could justify passing on to other borrowers.
Third, a study by Adam Levitin of the Georgetown Law School proves definitively that the availability of bankruptcy assistance to some borrowers in the past led to no increase in borrowing costs for others.
There is no reason to think that the same logic wouldn't apply in today's market that supports record low interest rates.
Myth No. 2: Changing the bankruptcy code will cause uncertainty in the market. Reality: Although the American Bankers Association asserts that ``mortgage cramdowns would add significant risk and uncertainty to mortgage lending,'' it is in fact the rapidly rising foreclosure rate that is adding risk and uncertainty to mortgage lending.
If potential homeowners think housing prices will continue to fall they will be unlikely to buy a home.
Aggressively preventing foreclosures will keep unnecessary supply off of the market, which will stabilize prices and encourage buyers to return to the market.
Since changing the bankruptcy code would save 1.7 million homes from foreclosure, the Durbin amendment would return a sense certainty to mortgage lending, not undermine it.
Some of the loudest opponents of my amendment were the chief contributors to the most uncertainty in the credit markets since the Great Depression. They have no credibility to tell us what the markets may or may not judge to create uncertainty.
Myth No. 3: Bankruptcy judges shouldn't be able to break the sanctity of the contract. Reality: The Chamber of Commerce argues that ``Cram down provisions would improperly expand the bankruptcy code by granting new powers to bankruptcy judges to modify the terms of existing, legitimate mortgage contracts.''
Legitimate mortgage contracts? What is so legitimate about no-doc, interest only, negative amortizing loans that had almost no chance to succeed from the day they are underwritten?
The concept of bankruptcy is enshrined in the Constitution, and bankruptcy has always been a venue in which contracts are restructured.
The Chamber and the banking industry had no problem with applying the sweeping 2005 bankruptcy code changes to all contracts past, present, and future when those changes benefitted businesses. They have no standing to now argue that because of the sanctity of the contract the bankruptcy laws should not be changed.
Myth No. 4: Allowing borrowers to modify mortgages in bankruptcy would shield borrowers from the consequences of their poor decisions to buy houses they could not afford, thereby creating a moral hazard. Reality: The industry that claims we should worry about moral hazard for borrowers is the same industry that helped create the greatest economic crisis since the Great Depression.
Bankruptcy is a painful process for the borrower, not one that is taken lightly. The intent of the legislation is to create the necessary incentives for more modifications to take place outside of bankruptcy.
And what about the families who have done everything right but have the misfortune of living next door to a foreclosure? If we save families from foreclosure we help their neighbors too. There's no moral hazard in that.
My amendment would save the neighbors of prevented foreclosures over $300 billion in preserved home equity. I will talk much more about that when I return to the floor tomorrow.
Finally, for many borrowers the problem isn't the home itself, but rather the high cost loan they are trapped in. Making the mortgage more affordable will make the home affordable for many families.
Myth No. 5: Restricting this amendment to only subprime and exotic loans is better policy than providing this option to borrowers with all types of loans. Reality: Although the National Association of Federal Credit Unions--which is the smaller of the two credit union associations--continues to argue that we should allow ``bankruptcy modification [to] apply to only to subprime or Alt-A (or nontraditional) mortgage loans,'' I disagree.
Last year I thought that this might be a reasonable compromise. But the foreclosure crisis has expanded far beyond subprime loans. The fastest-growing foreclosure rate by loan type is the traditional prime loan--once considered safe.
We are no longer just trying to solve for bad mortgage underwriting. We're trying to turn around the entire economy, and to do that we have to stabilize the housing markets.
Finally, how would we explain to our constituents that we're providing special assistance to borrowers who took out a riskier type of loan, but the families with a standard, conservative loan who may need a bit of help are out of luck?
Myth No. 6: Because community banks didn't create this crisis, it would be better policy to carve out their borrowers from having the option of bankruptcy assistance. Reality: Look at this picture again. If a community bank really cares about the community it serves, why should this foreclosure be allowed to take place just because the borrower took out a loan with a community bank rather than a big national bank?
Does that matter to the family who lost their home? Does that matter to the family living next door?
These banking associations have generated many myths of terror and destruction that this amendment would create, but the legislative language speaks for itself. And it refutes each of these myths.
Mr. President, 1.7 million families can be saved from foreclosure.
This is the Senate's chance to finally address the heart of our economic crisis, with no bailout money involved.
We may not have a better chance to help turn this crisis around.
Today the Senate will vote on my amendment to the housing bill that would give 1.7 million families a chance to save their homes.
I spoke earlier this week on the floor about the crushing impact to the broader economy that the foreclosure crisis has had.
Mortgages were bundled into mortgage-backed securities, which were sliced and diced into ``synthetic collateralized debt obligations'' and similar products, which were then sold to unsuspecting investors all over the world.
For a while there, they sold as if they were gold. Well, they are pretty tarnished now. They are now known as ``toxic assets.''
But I urge my colleagues not to forget that underlying these exotic ``toxic assets'' are things that we understand far more personally.
At the root of the crisis is the home. Mr. President, 8.1 million of them may be lost, according to Credit Suisse. My amendment will help save 1.7 million of them.
Also at the root of this crisis is the damage to the homeowners who live around these foreclosures, the neighbors who have made every mortgage payment on time. They stand to lose over $300 billion more, unless we pass my amendment.
I want to emphasize this point for a moment. There are millions of families all over America that have done everything right--they bought only as much house as they could afford, and they have made every mortgage payment on time.
Look at this picture. This house is well-kept, and appears to be the cherished home of a family that has acted responsibly. But this house next door, you can see what this house looks like.
Clearly, the well-kept home is worth much less than it would be if it were next to another well-kept home instead of this boarded-up eyesore.
Situations like this can be seen in each and every state that my colleagues and I represent. Families are in trouble, and their neighbors are suffering along with them.
By voting for my amendment we can save 1.7 million of these troubled families from foreclosure and can save their neighbors over $300 billion in home equity that would otherwise be lost.
In Florida, for example, we estimate that over 200,000 more families will lose their homes in the next few years if we don't pass my amendment.
Families like Derek and Kellyanne Baehr. As reported in local papers, Derek has been diagnosed with a rare neurological disorder that will eventually require him to use a wheelchair.
The couple has lived in their modest, single-story stucco home for four years, and they are now struggling to pay their mortgage.
After months of trying to work with their lender, they finally received a slight reduction in their interest rate, but ``it was like putting a Band-Aid on cancer,'' Derek said.
``We can't continue to go on this way,'' said Kellyanne. ``I cry about every day.''
If my amendment were to become law, this family's lender probably would have offered more than a ``Band-Aid on cancer.'' The lender likely would have offered a modification that would have kept the Baehrs in their home and paying their mortgage.
And, certainly, avoiding foreclosure would be a better result for both the Baehr's and the lender.
The neighbors who live around families who are kicked out on to the street--like the Baehrs may soon be--typically see the value of their homes--their most valuable asset--take a nosedive.
In Florida, neighbors of families that lose their homes will watch more than $36 billion of their assets evaporate unless we pass my amendment.
In Ohio, we estimate that nearly 44,000 more families will lose their homes in the next few years if we don't pass my amendment.
Some time ago I met the Glickens, a husband and wife from Ohio who were persuaded by a mortgage broker to commit to a mortgage that seemed fine at the start.
Then, the adjustable interest rates kicked in. They soon were being asked to pay 60 percent more than the original payments, and they just couldn't keep up.
Families like the Glickens are supposed to reach out to their lender to figure out how to modify the mortgage so that it is more affordable and so that foreclosure can be avoided.
Avoiding foreclosure is better for the homeowner and the bank, right?
Get this: the Glickens' lender charged them $425 to apply for a loan modification ..... and then turned them down anyway.
The Glickens needed a bit more leverage to negotiate with their lender, leverage that the threat of bankruptcy assistance would provide.
In Ohio, neighbors of families that lose their homes will lose more than $1.5 billion of their assets unless the Senate passes my amendment.
In Pennsylvania, over 37,000 additional families will lose their homes in the next few years if we don't pass the Durbin amendment.
As one example of many, a divorced father of twin boys in Levittown refinanced his mortgage after his divorce in an attempt to keep a stable home environment for his boys.
The refinance placed him in an interest-only mortgage with American Home Mortgage, which itself went into bankruptcy.
He ended up in chapter 13 trying to make the payments on all of his debts.
But, the bankruptcy court could not help him restructure his mortgage under current law, even though the court has restructured each of his other debts to help him make his payments.
Prior to filing for bankruptcy, he tried to reach an agreement with his lender, but he couldn't find anyone to talk to consistently about the situation and he was given no viable options to catch up on his payments.
This single dad would have benefited from my amendment. So would his neighbors.
In Pennsylvania, neighbors of families that lose their homes will watch more than $3.3 billion of their assets evaporate unless we pass my amendment.
In Maine, nearly 5,000 additional families will lose their homes in the next few years if we don't pass this bankruptcy provision. If you are watching at home in California or New York that may not sound like a lot of families, but people who live in Maine know just how devastating those losses would be.
For instance, a woman from Woolwich was barely making ends meet when she received a notice that the interest rate on her mortgage was going to increase by 3 percentage points.
She immediately contacted the mortgage company and indicated that she could not handle the additional expense.
The lender told her that they were not going to be able to work with her and there was nothing that they could do for her.
I am confident this woman's lender would have tried a little harder to help if the threat of assistance in bankruptcy loomed.
In Maine, neighbors of families that lose their homes will lose more than $100 million of their assets unless we pass my amendment.
In Missouri, we estimate that 22,000 additional families will lose their homes in the next few years if we don't pass this amendment.
We are talking about people like a Ford retiree in Kansas City who had fallen behind on his mortgage payments due to a high interest rate on the loan. He passed away, and his widow was unable to keep up with the payments.
The home was worth far less than the outstanding mortgage balance, and she started to receive foreclosure notices. Her loan servicer was not receptive to a discussion regarding a loan modification.
Her monthly income left her with about $700 after she made this mortgage payment. And her monthly heating bills that winter were $600.
Again, I have to believe the availability of bankruptcy assistance would have encouraged her lender to work with her.
In Missouri, neighbors of families that lose their homes will watch almost $1 billion of their assets disappear unless we pass my amendment.
In my home State of Illinois, last year in Chicago alone nearly 20,000 homes were in some stage of foreclosure.
The red dots represent these 20,000 homes. They are everywhere. And the problem is getting worse.
Statewide, my amendment would help 60,000 families avoid foreclosure. Their neighbors would preserve nearly $20 billion if my amendment becomes law.
How could I not fight for this?
Maybe I shouldn't take this amendment so personally. Perhaps I should
just argue dispassionately about the merits of the proposal, since the merits really do speak for themselves.
But when a family loses its home, that is personal.
The home is where parents tuck their kids in at night. It's where families share their daily stories over meals at the dining room table. It's where secrets are shared, where dreams are born, and where bonds are formed.
Every foreclosure is a tragedy. Every foreclosure is deeply personal for the parents who have to explain to their kids why they can't sleep in their bedrooms anymore. Every foreclosure that can be prevented, should be prevented.
The Senate can stop 1.7 million of them with one vote. The Senate can save their neighbors--our constituents--over $300 billion in the preservation of home equity with one vote. I urge a ``yes'' vote.
I ask unanimous consent that the letter of support attached to this statement be submitted for the Record.
There being no objection, the material was ordered to be printed in the Record
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