Harkin Supports Housing Amendment Estimated To Save More Than 8,000 Iowa Homes From Foreclosure

Press Release

Senator Tom Harkin (D-IA) today spoke on the floor of the Senate in support of an amendment offered by Senator Dick Durbin (D-IL) to the Helping Families Save Their Homes Act that would offer incentives for the creation of voluntary mortgage modifications. The amendment would prevent 1.7 million mortgages from falling into foreclosure and would preserve over $300 billion in home equity for neighboring homeowners who have made each of their own mortgage payments on time. According to estimates, approximately 8,089 homes in Iowa and $259,474,000 in neighborhood credit would be preserved. Following are excerpts from Harkin's floor statement, as prepared for delivery.

"There are a lot of similarities between the farm crisis of the 1980s and the home mortgage and foreclosure crisis of today. In both instances, the value of underlying assets - farmland in the one case, housing in the other - rose very steeply. And in both cases, debt secured by those underlying assets rose very rapidly, too.

"In both situations, income available to pay off debt fell - in the farm crisis because of lower commodity prices, in the housing crisis because of unemployment and lower wages and salaries.

"And in both instances the asset bubble burst. It was not only a matter of being unable to make payments. The asset values could no longer support the loans. With many farms, as now with many houses, the borrower owes much more than the real estate that is mortgaged.

"For a while in the farm crisis, both borrowers and lenders tried to ignore and deny what was a totally unsustainable situation. Eventually, some lenders relented and started working out new loan terms that would reschedule payments, modify interest rates, and in some cases write down debt. However, not all lenders would engage in that type of negotiation. For whatever reason, they did not want to recognize the economic reality that not all of the debt could be repaid and that there was not enough collateral value left to pay off the loan even if they went through foreclosure.

"So Congress had to step in to bring a dose of reality to resolving farm debt. It did so by enacting Chapter 12 to the Bankruptcy Code in 1986. In so doing, Congress gave to family farms and ranches the debt restructuring remedy that had been available to other business enterprises. Chapter 12 Bankruptcy permits court modification of loans to family farmers, including those secured by a principal residence.

"Professor Neil Harl of Iowa State University, one of the most respected agricultural economists in the nation, has conducted authoritative studies of the impacts of Chapter 12 Bankruptcy.

"One of the more significant findings by Professor Harl was that some 84 percent of the original filers for Chapter 12 bankruptcy were still farming or owning agricultural land seven years later. This was an astonishingly successful outcome, exceeding the expectations of even the most enthusiastic supporters of the Chapter 12 Bankruptcy legislation.

"Professor Harl also concluded that Chapter 12 provisions did not have a significant effect on interest rates. This was contrary to the dire predictions by many lenders at the time - the same dire predictions we are hearing from many lenders today.

"As Professor Harl points out, both in the 1980s in the agricultural sector and in 2007-2008 in the housing sector, "the losses have already occurred because the borrowers who receive relief would otherwise have been unable to repay their loan."

"Mr. President, the provisions in the Durbin amendment give powerful incentives to financial institutions to work constructively with those in financial difficulty. And, indeed, by giving a bankruptcy judge authority to force modifications to mortgages on primary residences, as is the case with most other assets, there is a real incentive to come to terms.

"This is helpful for the person in difficulty. And it is very often in the interests of the owner of the mortgage.

"Mr. President, we want to give relief to homeowners facing foreclosure not just for their benefit, but for our benefit and for the sake of the economy.

"So I urge my colleagues to support the Durbin Amendment. As we saw with Chapter 12 Bankruptcy during the farm debt crisis in the 1980s, these provisions will allow many people to retain their homes, and to weather this terrible economic downturn. Generally speaking, lenders will not lose any money that they would not already stand to lose if they were to force foreclosure.

"However, the positive consequences for our economy would be profound. An estimated 1.7 million families would be able to avoid foreclosure and keep their homes. Housing prices would receive much-need support. The housing market would be allowed to stabilize - as would the value of those so-called toxic assets. And all of this would be a much-needed tonic for our economy."

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