Commerce, Justice, Science, and Related Agencies Appropriations Act, 2013

Floor Speech

By:  Scott Garrett
Date: May 9, 2012
Location: Washington, DC


Mr. GARRETT. Earlier this year, the Obama administration and the State attorneys general across the country entered into a so-called multi-State mortgage settlement process, in a final settlement, with some of the Nation's largest servicers. What the administration stated at this time is that the settlement would require the servicers to use--this is important--their own money to help people, to help pay out overextended home buyers, basically. Unfortunately, this settlement went a lot further than that.

In that settlement, people who were purely investors in mortgage-backed securities were also negatively affected by it as well--you might say literally taking money from them, or stealing money from them, through this process. You see, these private investors, they did absolutely nothing wrong whatsoever, but now they also are on the hook for having to pay in upwards of billions of dollars to, again, bail out some people who made some bad decisions and wrong investments.

Now, I do very much sympathize with people, individuals--home buyers--who were hard-hit by the recession, and I understand what the intention of this settlement process was. But there is no reason whatsoever as to why private investors who fund our mortgage market in this country should have their private contracts broken and their money basically taken from them. See, they in this process were deliberately left out entirely of the administration's negotiations on the mortgage settlement. They did not have a proverbial seat at the table when the decision was made as to who would foot the bill. Basically, private contracts in the process were broken. People, investors, didn't have a chance to stop it. They didn't have a say.

Who are these investors I'm talking about here? They're State retirement systems. They're 401(k) plans. They're public pension plans. They're private pension plans. They're insurance company annuities. They're mutual funds. Basically, what I'm talking about is just regular, everyday people who comprise the majority of American retirees across this country. So, in addition to the DOJ's taking this action in this past settlement practice without the investors being present at the table, this is really, if you think about it, another example of private contract rights having been broken and about Fifth Amendment due process rights having been broken as well.

Now, this is all in the past--and what we're doing here in this legislation is going forward--but the past action, if it is able to be continued, would put in a hesitancy, if you will. It would encourage investors to step back from the mortgage market and say, you know, there is really a new political risk here if I'm going to invest in mortgages anymore, if I'm going to buy a mortgage, a bond, or what have you. And they will step back from doing so, and that will hurt everyone. That will hurt you, and that will hurt your neighbors who want to get a mortgage in the future because there will not be investors who will want to lend them money. Then what that will do, of course, is drive up the cost of borrowing, and that will drive up the cost of buying a new home. That, of course, is something that we do not want to do here.

So having the government basically taking money out of pension funds, taking money from retirees, is not something that we should allow to occur going forward, and that basically is what our amendment tries to do: prohibit the DOJ from keeping these people from being at the table in any further settlement negotiations like this.

With that, I yield back the balance of my time.


Mr. GARRETT. I appreciate the gentleman for yielding. I will be very brief on this.

I very much appreciate the fact that the settlement was done in a bipartisan manner. I very much appreciate the fact as to what the overall intent of the settlement efforts were by the administration and the State attorneys general. We're not questioning that at all.

It's a very interesting analogy that you make as far as the servicers being the agent of the investors, but remember who you're talking about as to who those investors are. They are the pension funds in your districts; they are the unions in your districts who have their pension funds invested in mortgage-backed securities; they are the retirees in your districts who went and, through a mutual fund or some other sort of fund, bought an investment--a bond or what have you--that was in mortgage-backed securities.

Now, yes, a third party, if you will, another party--the servicers--made some bad decisions in this. But the way this works is that the State attorneys general and the DOJ went after--who? Basically the four or five largest banks, which is about 20 percent of the industry, figuring that they would be the best targets to go after. Fine. That narrows it down who you're going to go after. Now you give them the discretion as to which mortgages they're going to write down--I'm going to write down this one; I'm going to write down this one. Which ones am I going to basically help out through bailing out the home buyers? Yes, a large percentage of those are on their own books, but some of them are not on their own books. Some of them are the servicers for other investors that are out there.

So which ones do you think the banks are going to look at first as far as taking a haircut from something that's in their own portfolio? From something that is going to be a negative to them, or from something that is out there extraneous--out to maybe one of your own pension funds out there? I would gather that, most likely, they will go outside of their own business financial decisions and say, let's look at some of these other investors instead. So that's who we're trying to protect.

At the end of the day, it is a very simple thing. If this were to go forward, really all you want to make sure is that those people, innocent and otherwise, have a seat at the table and can make sure that their rights and interests are protected as well.


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