Helping Families Save Their Homes Act Of 2009

Floor Speech

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Mr. DODD. Mr. President, I am going to take a few minutes to explain. I know the leadership has already made these announcements, but as I have been told, at 5:30 there will be two votes on amendments offered by our colleague from Louisiana, Senator Vitter. I am going to take a few minutes here, once again, to review the underlying proposals Senator Shelby of Alabama and I have crafted as part of this bill. Then I will take a few minutes to express my views on the two Vitter amendments. I presume Senator Vitter himself may come over and talk about this or others who are interested in the two amendments may show up to express their interest in them as well.

I thank the majority leader, Senator Reid, for scheduling the time for the consideration of this bill. Obviously, the importance of foreclosure mitigation is still critical. I still believe, as many do, that the root cause of our financial problems in this country began with the residential mortgage market, the predatory lending that went on with literally millions of people in this country. The Wall Street Journal reported that some 60 to 65 percent of people who were talked into predatory loans, subprime loans, actually qualified for conventional mortgages. Conventional mortgages are far less costly than subprime mortgages, but because there was a greater financial reward for brokers and others who were able to market and sell the subprime mortgages, they were marketed to people. Of course, those mortgages became far more costly. There were adjustable rate mortgages, there were teaser rates with almost no downpayments required and very little interest payments for months on end and then, of course, ballooning to the point that many people could ill-afford them. For many, they could not the afford them at all, to the point that problem migrated to other areas of our economy. As a result, today we find ourselves in a recession, and a deep one at that.

This bill is designed to help families save their homes. That is what it is designed to do. There are a lot of provisions that relate to the smaller banks in the country and how we can be of some help to them to get credit moving.

I did this last week at the close of business, but I thought I would spend a few minutes to review, once again, the major provisions of the bill without going into great detail as to what is included in each provision and then, as I said, address the two Vitter amendments that will be offered later this afternoon.

This amendment we have offered is a substitute amendment that Senator Shelby and I have before us now, which is S. 896. It expands the number of tools available to try to prevent foreclosures and the ability of homeowners and loan servicers to use those tools. In addition, the bill includes provisions to make the banking system more stable and improve the availability of credit.

Specifically, there are about 8 or 9 or 10 major provisions of the bill.

The first of these provisions expands the ability of the Federal Housing Administration in rural housing to modify loans. I made the point last week that this is absolutely critical. FHA has been a savior in many cases, providing credit when credit has not been available elsewhere to keep a limited housing market open. It is very important that they have the tools to do that--certainly the tools to modify FHA or USDA loans, as they do for non-Government loans they service.

This part of the bill is one that is critically important and can make a huge difference to people. There will be amendments offered to modify this provision of the bill. If we end up undermining the role of the FHA at this critical time, we can make it far more difficult for these foreclosures to be mitigated and decrease the possibility of people remaining in their homes.

Second, it expands access to the HOPE for Homeowners legislation, which makes a number of changes to that bill we adopted last summer. It was a program that was well intended but left a lot of problems in terms of the effectiveness and efficiency of the legislation. This bill will allow for the option to lower fees and streamline the borrower certification requirements. We give the Secretary of the housing agency in our country limited discretion to determine the amount and distribution of future appreciation. We ban the very wealthiest in our country from being involved in this program. It was never intended to be such. We allow for incentive payments to servicers and originators who participate in the program. Again, it is something designed to be of help to the average citizens, working families in this country.

Third, we create more enforcement tools for the FHA to eliminate bad lenders. This was an important provision that provides the tools to the housing and urban development agency to more expeditiously drop lenders that break FHA rules. This was needed to strengthen those provisions and make sure resources go to the areas that need them. They are certainly not to be used by lenders who are violating the rules of FHA.

We then provide for a safe harbor for servicers who would either modify a loan consistent with the Obama foreclosure mitigation program or refinance the borrower into a HOPE for Homeowners loan. This has been a contentious issue between bankers and investors, trying to do something with regard to mitigation. This has been narrowly drawn.

The House-passed bill--and I say this respectfully of the other body--had a broad provision in this area. This was an idea Senator Martinez offered a number of weeks ago. He has since modified this--and I agree with him--to try to restrict time, duration, and circumstances in which a safe harbor would apply.

What is a safe harbor? A safe harbor is designed to encourage the servicers to modify loans, servicers who have had contracts with investors. The investors obviously are somewhat reluctant to watch a modification of any of these things that would deprive them of the ability to take legal action against a servicer who engaged in a modification creating a safe harbor for the servicer. We encourage them--it doesn't mandate but encourages them to modify those loans with the borrower, in the absence of which I doubt any servicer will be willing to step forward do so.

So this is an absolutely critical area. While there are still concerns on the part of some, I believe it is the right step to be taking. It is limited in duration. It is limited to only the Obama foreclosure mitigation and the HOPE for Homeowners, only in those two instances, and therefore would not be as open and broad-based as provisions that have been adopted elsewhere.

So I encourage my colleagues to be supportive. There will be an effort to change this in a way that I think would make it unworkable in terms of achieving the desired results here. Again, with 10,000 foreclosures going on every single day in our country, we need to try to bring closure to that problem where we can. This is not going to solve every foreclosure, but it can certainly make a huge difference. An estimated 1.7 to 2 million foreclosures can be avoided with this kind of proposal in the bill.

With the Obama proposals and HOPE for Homeowners proposals, we think that would make a significant difference, allow people to stay in their homes, and allow the lenders to get some payment back rather than the property falling into foreclosure.

As the Presiding Officer knows, the contagion effect of a foreclosed property in a neighborhood is very daunting. We know for a fact that with one foreclosure in a neighborhood of a one-square-block area, the value of every other property in that square block declines by as much as $5,000 that very day. The last thing you want to see on your block, in your neighborhood, is foreclosed, boarded-up properties deteriorating. If you have a home there and that property is declining in value by the day, obviously everyone is adversely affected.

So while I know this is a contentious issue for some, I am pleased that most of the consumer groups, the realtors, the Financial Roundtable, and others strongly support the provisions Senator Shelby and I have in this bill when it comes to the issue of safe harbor. Again, I thank Senator Martinez, my colleague from Florida, for initiating the idea of this proposal.

The next provision authorizes an additional $130 million for foreclosure prevention activities. Senator Reid is the author. I mentioned earlier that his support in creating the space and time for this bill to come up has been critically important but also the addition of this language which we now know is terribly effective.

Earlier, Senator Schumer and others offered language to provide resources for the support of the prevention activities; that is, counseling activities. It proved very helpful. These can be complicated areas. To get into the issue of modifying a mortgage requires some good counseling. This is not a matter where the average person can just walk in and negotiate by themselves. I think having people who are experienced and knowledgeable, as we now have across the country, who can assist in this process, has been a great asset. These additional resources Senator Reid of Nevada has offered here will make a huge difference for people across our Nation, in addition to what has already been allocated.

Then we have some provisions to increase the deposit insurance with the Federal Deposit Insurance Corporation from $100,000 to $250,000. I mentioned earlier how important that is to people to avoid the kinds of runs that can occur when fear grips investors and depositors. Certainly, those who have even a passing knowledge of history, of the Great Depression, know what happened when fear gripped the country and there were great runs on the banks, people running and taking their deposits out of the banks, feeling as though they were going to lose them, and the old notion of hiding it in your mattress was not a joke; people actually did that. They buried their hard-earned money on their property rather than keep it in what they perceived as an unsafe institution where they could lose those resources.

So back in the 1930s, the FDIC was created to provide, among other things, an ability, when a bank is in trouble, to make that transition from a closed bank to one that could open so the people would not loose their resources, as well as providing insurance so that money would not be lost, a full guarantee of up to $100,000.

The world has changed a lot since the 1980s, which is when I believe that provision, the $100,000, was added, over the last 29 or 30 years. Raising it to $250,000 we believed was necessary to assist, providing further guarantee and assistance as well.

We increased borrowing authority in this bill for both the FDIC and the National Credit Union Administration, from $100 billion in the case of the FDIC and $6 billion for the National Credit Union Administration. There is additional authority that requires the approval of a two-thirds vote of the FDIC or National Credit Union Administration, a two-thirds vote of the Federal Reserve Board, and agreement by the Secretary of Treasury in consultation with the President of the United States.

We stretch out the payment of assessments to rebuild bank thrift and credit union deposit insurance funds to 8 years. This was a very important provision; for many of our lending institutions, that period of assessment is absolutely essential. If it is too short, it obviously puts a huge financial burden on these institutions. I believe the 8 years was a provision that was very important to these institutions and one that they are very pleased our legislation includes. I hope that will work as well as we intend it to.

We also improve the FDIC systemic risk special assessment authority. Again, that is a real relief to institutions that would not participate in that program, that would have been assessed anyway. This provision of the bill protects them from that kind of assessment. Again, it is essentially important.

That is a very quick review of the major provisions of the bill. As I mentioned earlier, this legislation enjoys broad-based support in our country, from major groups of people from major consumer groups in our Nation: The National Consumer Law Center, the Independent Community Bankers, the Center for Responsible Lending, along with the Housing Policy Council, the Financial Services Roundtable, the American Bankers Association. Rarely do I find these organizations coming together around a bill.

You will normally have the consumer groups on one side and your financial services sector on the other side. That is normally how it works. But because of the effort made by so many people on our committee and elsewhere, we have put together a piece of legislation which we think will make a difference on foreclosure, provide some needed reform to our major financial institutions, provide counseling and additional support for people who seek that kind of help, as well as attract the kind of support from diverse institutions that watch and care very much about these groups.

Last week I included letters of support. I should add as well that Lenders One, an association of mid-sized independent mortgage brokers, and the Mortgage Bankers Association, have endorsed what Senator Shelby and I have put together in this bill.

That is a rough summary of the legislation. Of course, anybody who is interested in further information about this, we would welcome them to come over and discuss any provision they have interest in.

Let me, at this point, if I can, address the two amendments which this body will consider at 5:30. The first one I will discuss is the amendment of Senator Vitter of Louisiana No. 1015.

This amendment, as I understand it--obviously Senator Vitter will come and explain his own amendment. I hope I am accurately describing it. Under the Emergency Economic Stabilization Act, currently it requires the Treasury to permit a TARP recipient to repay the financial assistance it receives subject to consultation with the appropriate Federal banking agency. When the assistance is repaid, the recipient must also buy back the warrants it provided to the Treasury at the current market price.

As I understand the Vitter amendment, it would require the Treasury to permit a TARP recipient to repay TARP assistance it received if the institution would be ``well capitalized'' after repaying the funds.

Capitalization of our lending institutions is a critical component, as the Presiding Officer knows, very important, certainly essential, before one would even consider, again, having TARP money come back, the whole idea of insisting upon properly capitalized institutions.

Under the amendment, Treasury could not condition the right of a TARP recipient to repay TARP on an agreement to also buy back the warrants. Under the current law, payback of the TARP money must be accompanied by the repurchase of those warrants.

In fact, the amendment gives the TARP recipient the right to determine when the Treasury must buy back the warrants it received; the TARP recipient is not required to pay market price for them.

I oppose the amendment and urge my colleagues to vote against it, I say respectfully of the author of the amendment, Senator Vitter, a member of our committee. I am concerned this amendment, if adopted, would further destabilize our financial system and could harm taxpayers who, of course, are the ones who put up the TARP money.

Under this amendment, the Treasury would be forced to permit a bank that received TARP money to repay that assistance based on the sole criterion that the bank would remain well capitalized. Again, I emphasize that is an important consideration, but it is not the only one.

If there is one lesson we have learned from this crisis, the definition for what ``well capitalized'' means is inadequate. For example, Citibank and Bank of America are well capitalized according to the standard in the amendment, and despite their obvious troubles, they would be able to return the TARP money they received. The standard the amendment would establish is simply ineffective and not comprehensive enough.

Currently, the regulators can consider the bank's condition in a more complete, holistic way in assessing its fitness to return TARP funds. The amendment would tie the hands of the regulators to this one particular factor, capital, a very important one but not the only one, a factor that has already proven to be faulty and insufficient to weather today's economic climate.

To get out from under the executive compensation restrictions and other conditions imposed by Treasury, for example, institutions that are in a weakened condition may put themselves and the broader economy at risk. That is why this is important. If we are only talking about one institution, certainly getting the TARP money back is something we would all welcome. But I think we need to look at this beyond just what the effect is on that one institution but what is the effect of the overall financial system. That was the reason why these TARP dollars went out in the first place.

So while being well capitalized is very important, if you limit it to that and that only and allow an institution, such as the ones I have mentioned, to then move beyond that, there could be put at risk the larger economy, which is, of course, the major goal here, to get the overall economy functioning and moving in the right direction.

If banks were allowed to move in that direction merely on that basis alone, then I think we would regret that. Again, I think it is something we ought to be striving for, but this amendment is too narrow, in my view, to limit the decisions strictly on that one criterion. If lending is limited as a result of this amendment, that would mean more businesses closing for lack of financing, more job losses in our country, and a further weakening of the overall economy, delaying even further the recovery we all seek.

It also would mean more foreclosures, which is at the heart of the bill. Foreclosed homes will stay on the market longer because people would not be able to get mortgages to buy these homes.

As my colleagues know, the large banks have gone through the so-called stress tests. Many of them, despite being designated as ``well-capitalized,'' may still be forced to raise more capital, we are told.

It strikes me as unwise that we want to tie Treasury's hands at this important time, right when the results of the stress tests are to be announced.

The amendment would also harm the taxpayer by allowing the TARP recipient to decide when warrants may be exercised and by limiting the Treasury's ability to require the repurchase of warrants when TARP funds have been repaid.

It also harms the taxpayer by eliminating the requirement that Treasury pay market price for the warrants and would allow banks to try to negotiate a better price, thereby reducing the returns to the taxpayers who put up the money in the first place.

In conclusion, I would respectfully oppose this amendment. Current law already allows the banks to repay their TARP funding--in fact, we would encourage it--when it is the right time and safe to do so, examining an array of criteria, not just being well-capitalized. The quicker we can do that, the better off we are going to be. But it will be important that when some of these major institutions repay that, that in so doing they are not going to be jeopardizing the economy at large.

The amendment, however, could cut credit availability at a time when credit is desperately needed; and could put more institutions at risk when stability is needed; and it is a bad deal, further, for the American taxpayer who, ultimately, is the one who put up the resources and hopes to get repaid when this economy begins to recover.

Again, respectfully I say to my colleague and friend from Louisiana, I would oppose that amendment.

The second amendment is No. 1017. This amendment deals with the Federal Housing Administration. The Vitter amendment would establish ``solvency'' as the ``primary foundational responsibility'' of the Federal Housing Administration, the FHA.

The amendment then requires the Secretary to close down any FHA program if it seems ``reasonably likely'' that the FHA might need credit subsidy from Congress. Again, I oppose this amendment because it does exactly the opposite of what we ought to be doing at a moment such as this.

We thank our lucky stars that we have the FHA providing credit at this time. In exactly a moment such as this, you need the FHA out there to provide that credit when credit is so unavailable through the clogged-up financial system in our Nation. First and foremost, this amendment fails to reflect the fact that the primary mission of the Federal Housing Administration is to help create and sustain home ownership for American families.

The mission of the FHA is especially important now, while we are struggling through such troubled economic times. FHA currently insures nearly 30 percent of the mortgage market in our Nation.

If you extend the logic that the amendment proposes, you would shut the doors of Fannie Mae and Freddie Mac right now because both have had to draw on their credit lines from the Treasury. Without them, we would lose the other 70 percent of the mortgage market overnight, turning a housing recession into a deep housing depression.

In my view, if it were not for the Federal Government at this hour, working through FHA and other federally supported institutions, there would be no mortgage credit available at all.

The FHA has a mission. It is to ensure that adequate and affordable mortgage credit is available in every part of our Nation. It is currently fulfilling that mission admirably, while many other sources of credit, as I mentioned earlier, have totally disappeared or almost completely disappeared.

The Federal Housing Administration pushes against the prevailing downward winds in our economy. It is countercyclical. The Senator's amendment would turn the FHA into a procyclical program, withdrawing credit, pulling it back, when credit is so difficult to come by. This change would help deepen the worst housing recession we are experiencing since the Great Depression.

Moreover, I think it is important to know that FHA fund is not at risk. As of the second half of the fiscal year 2009, the sum of FHA's investments and cash on hand is nearly $32 billion. Its net position, assets minus liabilities, on March 31 of this year, was a positive $11.8 billion. Although FHA's capital has fallen to 3 percent, it is still 50 percent above its statutorily mandated level of 2 percent. Falling capital in tough times is to be expected. That is what is going on. We all understand that. That is what you have capital for, to protect yourself in the bad times.

In addition, it is important to remember that FHA has always been a fixed-rate mortgage insurer. It never got involved in the exotic and often predatory practices offered by the subprime lenders. FHA has also required income to be documented and verified.

In fact, because FHA has been known for its solid loan products, more and more people with better credit quality are using FHA today. Over the past 6 months, the average credit score in FHA has increased by nearly 40 points.

Finally, current law already establishes a fiduciary duty ``to ensure that the Mutual Mortgage Insurance Fund remains financially sound.'' The Secretary is already required to make program changes or adjust premiums if FHA's performance is expected to differ substantially from the baseline established by an independent actuarial report.

Secretary Donovan has assured me and the Congress that the Congress would be immediately alerted if he thought the FHA was at risk at all.

In short, I ask my colleagues, again, I say this respectfully of its author, to oppose this amendment. It is not needed. It would be exactly the wrong message, the wrong action to be taking at this critical time. Solvency is not an insignificant issue, but the role of the FHA is not to provide solvency, necessarily, but it is to provide credit at a time when credit is not available.

When as many people as I have indicated by the facts are relying on the FHA at a time when we are trying to encourage home ownership on responsible terms--and the FHA, as I pointed out earlier, was not one of these exotic lenders that was out there with these predatory practices. Quite the contrary. So rather than, in a sense, changing the mission of the FHA, fundamentally altering what its goal is and ought to be at these times, we need to oppose this amendment.

Again, we need to rely, as we can and must, on the fact that the FHA is in sound shape. If it is not for some reason, we have every reason to believe we can take improvement steps.

Accordingly, again, I would urge our colleagues, when talking about both of these amendments, join me in opposing them, given the difficulty that both these amendments would raise if they were to be adopted.

Again, I will be happy to be in the Chamber for the next hour or so. If people wish to come over and engage in a discussion or debate, I welcome that opportunity. But at 5:30, in a little more than an hour, we will have a vote on both these amendments of our colleague from Louisiana.

Let me say, again, I think we assume this is personal in nature. It is not. I have respect for my colleague. We have a different point of view on matters. That is the nature of the institution and the debate that occurs.

I don't question his motives or the sincerity behind his amendments, but I believe in both cases they would move us in the opposite direction from where we need to be going.

With regard to TARP funding, all of us wish to get the TARP money back to the taxpayers as quickly as we can with interest. But we need to understand it is more than just capitalization when we make that decision. We don't want to do harm to our economy at a critical moment such as this. Secondly, with regard to FHA, solvency is important. The mission of FHA is, of course, to be countercyclical, not procyclical. At a critical time such as this, depriving them of that opportunity to fill a credit gap that does not exist today would be exactly the wrong message and do great damage to a critical component of home ownership.

I yield the floor and suggest the absence of a quorum.

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Mr. DODD. Madam President, I see my friend from Louisiana is here. I spoke earlier about my colleague's two amendments. I appreciate the spirit and motivation behind them. I will take a couple of minutes to review my concern about them.

First, regarding Senator Vitter's first amendment, No. 1016, dealing with TARP money, I think we all would like money coming back sooner rather than later--getting to a point where these resources come back, with additional interest, to the extent that taxpayers can be made whole as a result of coming up with that money in the first instance and trying to bring stability to the financial markets. There is no debate about that. We agree about that.

There was significant debate that occurred about whether there should be TARP money to begin with. It wasn't all one way. I supported it. I thought it made sense to try to stabilize our economy. I believe most believe that the decision made last September, early October, was the right one. In fact, had we not done that, we probably would have lost major lending institutions in the country over many months. Obviously, this administration inherited a good part of the problem, which didn't begin overnight, and it is trying to grapple with it in a holistic fashion, institution by institution.

My concern with the amendment of my friend from Louisiana is this: He is absolutely correct that, again, if we have an institution that is well capitalized, that is a very important criteria in consideration of when these TARP moneys ought to be repaid. My concern is it is not the only criteria. We have major lending institutions, which I could make a case both in Citi and Bank of America, that are well capitalized but, frankly, they have other issues they are grappling with beyond being well capitalized.

If that was the sole criterion, then we would be able to have the TARP money come back. Citi may want to do that, and Bank of America--and I am not suggesting they do, but they may--their problems could migrate very quickly to the larger financial problems with which we are trying to deal.

On the one hand, I agree with the motivation, and that is we ought to try to get to the bottom of this as quickly as we can, get the TARP moneys back so the Treasury is replenished with these resources. On the other hand, if we do so prematurely solely on the basis of being well capitalized, we can end up compounding a problem that is already serious and making it far worse.

For that reason, I urge this amendment be rejected. I say that respectfully to my colleague. I don't like getting up and opposing amendments for the simple reason of opposing them. There is a difference here, to have one criteria on which we would depend solely on the determination of returning these dollars, putting the larger issues at risk, I think would not be the right move to make at this point. Therefore, at the appropriate time I will ask for the amendment to be rejected.

Regarding FHA--and, again, I find myself in the awkward position of not disagreeing with my colleague. Solvency is obviously an important issue. Had the rest of the lending institutions in the country been as prudent as FHA, we wouldn't be here talking about this larger problem.

FHA never engaged in the exotic instruments that many others did in the subprime markets with teaser rates and no-doc loans, as they were called, or liar loans. FHA has been a well-run, prudent operation. Today, when very little credit is available for home mortgages, FHA is proving to be vitally important. Thirty percent of the mortgage market today is made up of FHA. If the goal of FHA is strictly the solvency of it--today it is 50 percent above statutorily what it is required to have on a cap of 2 percent, at 3 percent, less than 6 they had a while ago. Obviously, we have to keep an eye on this. But the law statutorily requires the Secretary of the Treasury to notify the Congress when, in fact, there is danger of FHA falling either at or below that 2-percent requirement.

Again, solvency is not insignificant. If that becomes the criteria at a time when we need to be getting more credit out so we begin to get the housing market moving again, I think it is absolutely essential. If FHA is forced to close down just as it is needed most, making it procyclical not countercyclical--which is exactly what we need to be is countercyclical, not procyclical--then we would be turning the recession in the housing area into a depression, which none of us want to see happen.

At this hour, it is very important that we keep FHA moving in that direction, watching, obviously, as my colleague from Louisiana suggests by his amendment, that solvency not be disregarded.

Current statute already requires the Secretary to adjust programs that ensure FHA remains financially sound. In fact, like all housing-focused activities, FHA has lost money in this crisis, but it still has more capital than the law requires, and the quality of its borrowers is improving as we speak. That is to be applauded.

At this very moment, were we to move away from FHA when so much of our housing market depends upon them, I think would be a step in the wrong direction. For that reason, I respectfully ask our colleagues to oppose this amendment. Again, I find myself in the awkward position of not disagreeing with what my colleague talks about in the case of both amendments; that is, getting TARP money back as soon as we can and that solvency is a critically important function at FHA. That is why the statute was written the way it was. I agree with him on those points. I am just concerned if in the first case we set a sole criteria of being well capitalized, and in the case of FHA if solvency is the only value, then we lose the value of FHA at a time when housing is having a hard time finding available credit.

I yield the floor.

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Mr. DODD. Madam President, I wish to add regarding the FHA amendment,
for my colleague's information, joining me in opposing the amendment are the mortgage bankers, homebuilders, realtors, Lenders One--the people very involved in the residential mortgage market. I note they expressed a concern about the amendment.

I suggest the absence of a quorum.

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