Economic Development Revitalization Act of 2011

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Mr. MERKLEY. Madam President, I rise to speak to amendment No. 428 on the regulation of mortgage servicing. We spend a lot of time in Washington talking about many topics but often not getting to the issue most important to American citizens; that is, getting them back to work, creating jobs. Creating jobs should be the paramount concern of every person in this town. We are not going to get job growth going again until we deal with the housing crisis that started this recession and that is blocking our recovery.

Three years ago, our economy was nearly destroyed by a combination of high-risk, high-cost subprime mortgages and reckless bets on Wall Street. Since then we fixed many of those problems in subprime mortgages. We have ended three of the key predatory practices. One of those was undocumented loans, otherwise known, commonly, as ``liar loans,'' where the information was fictionalized.

Then we had the prepayment penalty. It was a steel trap in which a mortgage document would lock people into a loan with an exploding interest rate and would prevent them from being able to get out of that loan. We knew from a Wall Street Journal study that 60 percent of the families in these predatory loans with the steel trap prepayment penalties qualified for regular, ordinary, fully amortizing 30-year prime loans.

That leads us to the third point, which was the undisclosed bonuses, otherwise known as steering payments or kickbacks, that were paid to mortgage originators when they steered families from the prime loan with a fair interest rate and 30-year amortization into the predatory subprime loan with an exploding interest rate and a steel trap prepayment penalty.

It is good that we ended those practices for the future. But for the families who have been caught up in the flood of foreclosures, it is as though we rebuilt the levees but we have not done anything to take away the water that is still flooding their living rooms.

Just last week, new reports, the Case-Shiller Index, showed that home prices have reached their lowest level since 2002. If home prices are that low, it is also hard to build new homes. Indeed, a recent report said the number of new homes being built each month had reached the lowest level since 1965--that is almost 50 years ago. Simply, our economy is not going to recover until our housing market recovers. A home is the single biggest investment that most families make, and it is the key to their financial success. It is often the key to happiness in retirement.

In addition to the impact on millions of families--and we are looking at the possibility of 5 to 8 million more families facing foreclosure stemming from this predatory lending crisis that melted down our economy in 2008 and 2009--in addition to the impact on those families, it has an impact on our communities. When there is an empty house on the street, it pulls down the value of every other home on that street by as much as $2,000 to $5,000 per home. That further drives down prices, which means more foreclosures, more families underwater, less confidence in the recovery, more inclination to hold onto every dollar rather than to spend in our economy, so the consumer spending is suppressed and our GDP is directly linked, both to the amount of money invested--and we know many companies around America are sitting on vast sums rather than investing them--and on the amount of money families spend.

These things all tie together, whether our economy is going to succeed or remain in its current paralyzed shape. Often it is important to take these big numbers and translate them to individual stories. I would like to share today a story about Tim Colette and his son in my State of Oregon. We received this article from Economic Fairness Oregon. It is titled, ``A Homecoming With No Home.'' I will read the first paragraph. Mr. Colette says:

My biggest problem now is, my son comes home from the military in August and my home is being foreclosed on in 18 days. He's been hit by an IED, people shooting at him and he just wanted to come home and sleep in his room in his bed and be safe for 15 days ..... and I told him I'd make that happen. I don't know how yet, but I will.

Mr. Colette shared his story with Oregon lawmakers in a recent hearing on foreclosure reform, and I thank him for sharing his story. For Tim and countless others, it did not need to be this bad. We have a program in America called the Mortgage Modification Program, or HAMP, Housing Affordable Modification Program. That program has not worked very well. Indeed, it is a voluntary program. It has been more or less a nightmare for the families who have been applying.

Often a servicer will encourage families to apply because they make more money when a family is behind on their payments than when they are current on their payments. So often the servicer will say: You know, you probably qualify. What you need to do is stop making your payments for a period of 3 months or maybe 6 months or what you need to do is cut your payments in half and that will show financial distress and you will qualify for this program.

So the family follows those directions, understands they are in the process of getting a modification, and then it turns out the servicer has a different story to tell, often saying: You know what. Your credit score is not very good because you have only been making half payments for 6 months. So, you know what, you don't qualify after all, and you owe us a lot of money. If you do not pay us, we are foreclosing.

That is the nightmare of a program that was supposed to help families but has often hurt families. Mr. Colette's story is one of these stories of going through the difficulty of this program. He bought his home in 2006. At the time it seemed like a great investment for him and his son, especially considering that he was in a position to put down more than $100,000 as a downpayment. It is a situation that very few families can emulate. He was able to afford his mortgage payments quite easily within his income.

But when Wall Street's bad bets sparked the national recession, everything changed. He lives in one of the hardest hit areas of the State of Oregon, Deschutes County, and the construction industry dried up overnight and therefore his business, his construction business, dried up overnight. He called his mortgage servicer to begin the mortgage modification process, and he did what the bank asked him to.

At the time the bank extracted partial payments, actually for years, on the false hope that Tim could receive a long-term fix. So month after month his equity, that original $100,000 downpayment, was siphoned away. It was siphoned away through bank fees, it was siphoned away through declining property values, until there was nothing left.

Had his request for a modification been processed promptly, either he would have been approved or denied. If he would have been approved, it would have been great. It would have locked in his payments, and he could have continued with that fine financial foundation. If he had been denied, he would have had the ability to say: I have to make a decision then. Do I put this home up for a short sale? Do I put it up on the market and try to sell it for what is owed to the bank? He would have had some savings left over to pick up and start over.

Tim did all that was right and he played by the rules, but he is in a precarious position today. In just 9 weeks, his son, serving our country overseas, will come home. Let's hope it is a homecoming with a home, not a homecoming without a home.

This amendment does three important things: The first is, it establishes a single point of contact so when a family talks to their servicer they do not have to start from scratch every single time, explaining their story. With that single point of contact there will be somebody who has a coherent file. So often, each time a family talked to a different person at the servicer, that person had lost the file or lost key papers in the file or was sent additional information that had been requested but did not put it into the file. So a single coherent point of contact.

Second, this amendment ends the dual track on which servicers proceed to pursue foreclosure at the same time they are talking to the customer about a modification. Very simply, this amendment would set aside that dual track, that foreclosure track, until they make a decision. They can make it over a longer period of time, over a shorter period of time, but until they make the decision and tell the customer, they set aside the foreclosure track. That would reduce a lot of the stress, a lot of the confusion, a lot of the enormous frustration that families face.

The third point in this amendment is that it requires a third-party review before a servicer sends a home into foreclosure.

That simply guarantees that the law has been followed, that there was a coherent examination of the paperwork and a foreclosure is in order at the same time a modification has been approved or a foreclosure is in order at the same time a modification is on the verge of being approved or that a foreclosure doesn't proceed because a document is missing from the file. Connecticut and Maine have such a program, and it has kept 60 percent of the families who would otherwise be out of their houses in their houses. So three basic, fundamental reforms.

I wish to thank my Republican cosponsor, Olympia Snowe, who stepped forward on behalf of homeowners across this Nation to say yes to fairness. I also thank the other dozen or so Senators who in the last day have signed up as cosponsors. Many of them have been real champions in their States, and some of them have worked very hard on these issues, including Senator Reid and Senator Whitehouse. In fact, I would note that Senators Akaka, Blumenthal, Durbin, Inouye, Levin, McCaskill, Sanders, Shaheen, Whitehouse, and Wyden, and I imagine many more will join us.

I encourage my colleagues to support fundamental fairness: single point of contact and a foreclosure dual track and have a third-party review so that homeowners get a chance, like Mr. Colette, to stay in their homes.

Thank you, Madam President.

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