Borrower's Protection Act of 2007

Mr. President, today we are facing a crisis in the mortgage markets on a scale that has not been seen since the Great Depression: over 2 million homeowners face foreclosure at a loss of over $160 billion in hard-earned home equity; the Conference of Mayors recently reported, November 26, 2007, that they expect a decline of $1.2 trillion in property values in 2008 because of the crisis; over one out of every 5 subprime loans is currently delinquent according to First American Loan Performance, an industry research firm. These high default rates have frozen the subprime and jumbo mortgage markets and infected the capital markets to the point where central banks around the world have had to inject liquidity into the system to avoid the crisis from spreading to other segments of the market.

One of the fundamental causes of this serious crisis is abusive and predatory subprime mortgage lending. The Homeownership Preservation and Protection Act of 2007, which I am introducing today with a number of my colleagues, is designed to protect American homeowners from these practices, and prevent this disaster from happening again. The legislation will: realign the interests of the mortgage industry with borrowers to insure the availability of mortgage capital on fair terms both for the creation and sustainability of homeownership; establish new lending standards to ensure that loans are affordable and fair, and provide for adequate remedies to make sure the standards are met; and create

a transparent set of rules for the mortgage industry so that capital can safely return to the market without bad lending practices driving out the good.

The fundamental problem in the subprime market today is that the mortgage system has become extremely fragmented, with different entities responsible for selling, underwriting, originating, funding, and securitizing the loans. Too few of these entities have a stake in the long-term success of the mortgage. A recent article in The Economist, February 17, 2007, described the process succinctly:

Banks are traditionally supposed to know a bit about the

borrowers on their books. But, in many cases, their loans did

not stay on their books long enough for them to care.

Mortgages were written for a fee, sold to investment banks

for a fee, then packaged and floated for another fee. At each

link in the chain, the fees mattered more than the quality of

the loans. . . .

As the GAO concluded, ``Originators [mortgage brokers and lenders] had financial incentives to increase loan volume, partially at the expense of loan quality,'' October 10, 2007. For example, mortgage originators have an incentive to get a borrower to take out a larger loan than he or she needs, and at a higher interest rate than that for which the borrower would qualify, because the originator gets a higher commission for such loans.

Comptroller of the Currency John Dugan recently described the corrosive impact of this system on underwriting standards. In a speech to the American Bankers Association October 9, 2007, Mr. Dugan said:

When a bank makes a loan that it plans to hold, the

fundamental standard it uses to underwrite the loan is that

most basic of credit standards that . . . the underwriting

must be strong enough to create a reasonable expectation that

the loan will be repaid. But when a bank makes a loan that it

plans to sell, then the credit evaluation shifts in an

important way: the underwriting must be strong enough to

create a reasonable expectation that the loan can be sold or

put another way, the bank will underwrite to whatever

standard the market will bear.

The vast majority of subprime loans were made to be sold, and, hence, their underwriting standards simply were not sufficient to ensure a reasonable prospect of repayment for too many Americans.

While the focus of much of the news coverage has been on the impact of the crisis on financial institutions and markets, I ask my colleagues to keep in mind the affect this is having on individuals who are losing their homes, and on their neighbors, who are seeing their home equity erode as foreclosures in their neighborhoods increase.

It is important to keep in mind that only about 10 percent of subprime mortgages in the past several years have been made to first time home buyers. This market has not been primarily about creating a new set of homeowners; a majority of subprime loans have been refinances. While maintaining access to subprime credit on fair terms is important, too much of the subprime market in the past several years has actually put the homes and home equity of American families at risk.

The legislation seeks to set high standards for brokers, lenders, appraisers, servicers, and Wall Street and provide for strong remedies to restore accountability to the system. Specifically, the legislation will establish new protections for all borrowers including a prohibition on steering prime borrowers to subprime loans, which the Wall Street Journal recently found was widespread in the market. The bill establishes a fiduciary duty for mortgage brokers towards borrowers. It provides for a duty of good faith and fair dealing toward borrowers for all lenders.

The bill will establish new protections for subprime borrowers and borrowers who get exotic mortgages. First and foremost, brokers and lenders will have to establish the borrowers' ability to repay the loan, including for interest-only and option ARMs. In addition, the bill prohibits prepayment penalties and YSPs on these loans, and requires that these loans provide a net tangible benefit to the borrower.

The bill will tighten the definition of high cost loans and provide increased protections for these borrowers, including a prohibition of balloon payments, financing of points and fees, prepayment penalties and yield spread premiums, YSPs.

The bill will provide strong remedies to make sure these standards are met. The bill puts more ``cops on the beat'' by allowing state attorneys general to enforce the provisions of the law, and it does not preempt State law. States should be allowed the flexibility to address new abuses as they arise.

The bill will provide for limited liability for holders of a mortgage made in violation of law, whether it is the original lender or a subsequent investment trust. Unlike current law, which puts the burden on the borrower to find the party responsible for causing the harm, the legislation allows the borrower to go directly to the current mortgage holder for a cure.

The bill will also prohibit lenders from influencing appraisers, limit the ``junk'' fees mortgage servicers can charge, and require them to credit payments promptly, require foreclosure prevention counseling or loss mitigation before a foreclosure can take place, and uuthorize the hiring of additional FBI agents to fight mortgage fraud.

In the coming months, the housing crisis is going to get worse. We will need to continue to press lenders and servicers to provide real relief for homeowners threatened with foreclosure. FHA and the GSEs will have to play an expanded role. But as we deal with the cleaning up the current crisis, let us keep in mind the need to address the underlying problems that have created the crisis, and move to address those underlying causes by passing the ``Homeownership Protection and Preservation Act.''

Finally, I want to acknowledge the work of a number of my colleagues on this issue. Senators Schumer, Brown, and Casey introduced a bill on this topic earlier this year, S. 1299, from which I took some important provisions. In addition, Senators Reed and Menendez both made important contributions to the deliberations leading up to the introduction of this legislation.

Mr. President, I ask unanimous consent that the text of the bill and a detailed summary be printed in the Record.

Mr. President, I rise today with my colleagues Senators Dole, Durbin, Feinstein, Stabenow, Salazar, Kerry, Brown, McCaskill, Schumer, Boxer, Levin, Bayh, Burr, Martinez, Clinton, Pryor, Leahy, Lincoln, Hutchison, Chambliss, Rockefeller, and Isakson to introduce legislation vitally important to the ability of our States to continue to fund their Medicaid programs and ensure access to health care services for low-income constituents. The legislation would extend the existing 1 year moratorium for an additional year on a

CMS rule limiting Medicaid payments to public and teaching hospitals as well as the ability of States to fund critical healthcare programs for rural residents such as through Sole Community Hospital programs.

On January 18, 2007, the Centers for Medicare and Medicaid Services, CMS, published a proposed rule entitled ``Medicaid Program; Cost Limit for Providers Operated by Units of Government and Provisions to Ensure the Integrity of Federal- State-Financial Partnership'' that would make sweeping changes to public and other safety net provider payment and financing arrangements with State Medicaid programs. The proposed rule would: impose a cost limit on Medicaid payments to public and other safety net providers; impose a new Federal definition of public provider status; and, greatly restrict the sources of non-Federal share funding through intergovernmental transfers, IGTs, and certified public expenditures, CPEs.

National advocates report that over 400 comment letters were submitted to CMS on the proposed rule, none of which expressed support for the rule and the overall majority of which called for its withdrawal. In addition, a budget neutral reserve fund to block this regulation was introduced by me and approved by the Senate this year.

CMS subsequently issued an additional regulation that would force billions of dollars in additional Medicaid payment reductions to teaching hospitals, many of whom are public hospitals, hampering the ability of those providers to provide essential services including the education of the next generation of medical professionals despite a shortage of medical professionals. The proposed regulations would cut at least $5 billion in Medicaid funding for safety net hospitals nationwide over 5 years--weakening their effectiveness for all of us and jeopardizing the health of millions of vulnerable children and families.

In response to these rules, 66 Senators and 283 Members of the House have gone on record in opposition to the rules since they were released earlier this year. This includes a majority of the Finance Committee including Senators: Roberts, Snowe, Smith, Rockefeller, Kerry, Bingaman, Salazar, Stabenow, Wyden, Lincoln, Schumer, and Cantwell.

Furthermore, Congress showed its strong opposition to the rules by including a one-year moratorium in the recent supplemental appropriations bill, P.L. 110-28. The moratorium prohibits implementation of the rules for one year from the date of enactment of the supplemental. The supplemental was negotiated extensively by Congress and the White House and a deal was reached on May 23. On May 25--the day the President signed the supplemental, and the moratorium, into law--the administration put the final rule on display and published it in the Federal Register on May 29. The most damaging components of the proposed rule remain in the final rule, including Medicaid cuts limiting public and other safety net providers to cost.

Since then, CMS has issued a third rule of major concern to public and teaching hospitals. On September 28, 2007, CMS released a new proposed rule governing the calculation of the Medicaid outpatient upper payment limit, UPL. Many believe this action was in violation of the current moratorium enacted by Congress. For example, the outpatient regulation would exclude GME costs from the calculation of the Medicaid Outpatient UPL for all hospitals and would also eliminate many ancillary services from the UPL calculation for all-inclusive rate providers.

Major Medicaid reforms require a congressional role. By rushing to publish a final regulation, CMS has disregarded congressional opposition and attempted to usurp Congress's role. In addition, the status quo is now the administration's new policy, not what existed when Congress was in the process of enacting the moratorium. CMS's action requires states to prepare for implementation of the regulation and expend administrative resources to do so--all of this before Congress has the opportunity to address the key policy issues contained in the regulation.

I urge my colleagues to join me in supporting this important legislation.

Mr. President, I ask unanimous consent that the text of the bill and letters of support be printed in the Record.

Mr. President, today I join my colleague, Senator Pat Roberts, in introducing the Influenza Vaccine Security Act. Senator Roberts and I first introduced this legislation during the 109th Congress, in response to seasonal flu vaccine shortages, as well as the growing awareness of the need for pandemic flu preparedness. Some of these provisions were incorporated into law, but the overall need to address problems in education, tracking, and distribution related to seasonal influenza vaccine have not changed.

About 36,000 Americans die from the flu every year, and 200,000 more are hospitalized due to complications from the flu. These complications and deaths are largely preventable with a simple flu shot. Yet the process of getting a flu shot is not always simple. Since 2000, our Nation has experienced multiple shortages of flu vaccine prior to Thanksgiving, when demand is highest. What we have also experienced-- and what received less attention--is the fact that at the end of the flu season, we often have surpluses. The millions of doses that were in such high demand earlier in the season go unused. We need to bring some stability into the vaccine market, to ensure that we have vaccine at periods of high demand, and also sustain demand beyond the limited early-season period.

The Influenza Vaccine Security Act will help create a stable flu vaccine market for manufacturers by increasing coordination between the public and private sectors so that we can set targets and procedures for dealing with both shortages and surpluses before they hit. It will also create a buyback provision so that we can direct late-season surplus vaccine to public health and bioterrorism prevention efforts, instead of having it go to waste. The legislation will increase demand for vaccine by improving education and outreach to populations with historically low rates of influenza vaccination.

Of course, vaccines do us no good if they can't get to the people who need them, and in past shortages, we had problems matching existing stocks of vaccine to the high priority populations, like senior citizens, who needed vaccines right away. The Influenza Vaccine Security Act also sets up a tracking system so the CDC and state and local health departments can share the information they need to ensure that high priority populations will have access to vaccines. This tracking system is critical and will provide fundamental infrastructure necessary not only to deal with our annual flu season, but avian or other pandemic outbreaks.

This legislation is supported by Trust for America's Health, the American Lung Association, the American Public Health Association, the National Association of County and City Health Officials, the American Academy of Pediatrics, the American Academy of Physician Assistants, the American College of Occupational and Environmental Medicine, the Association of American Medical Colleges, the Association for Professionals in Infection Control and Epidemiology, the Allergy & Asthma Network, Mothers of Asthmatics, the Asthma and Allergy Foundation of America, the Center for Biosecurity at the University of Pittsburgh Medical Center, the Center for Infectious Disease Research & Policy, the Immunization Coalition of Washington, DC, and the Service Employees International Union.

Mr. President, I ask unanimous consent to have letters of support printed in the Record.

Mr. President, for the last few weeks, the administration has increased its rhetoric about a looming budget shortfall at the Department of Defense unless Congress passes an emergency spending bill. Most recently, the President threatened to lay off hundreds of thousands of Federal workers at DoD to make up for any shortfalls. This is simply unacceptable.

The Pentagon said as late as last week that the Department has sufficient funds in order to keep our fighting men and women in Iraq and Afghanistan supplied through late February to mid-March of next year. Nonetheless, the administration continues to threaten to layoff workers to make up for a non-existent gap in funding. The Department of Defense should not use Federal employees as pawns because the White House is playing politics with the budget.

As Chairman of the Governmental Affairs Oversight of Government Management and Federal Workforce Subcommittee and the Armed Services Readiness Subcommittee, I have made oversight Government contracting a priority. In several hearings, I have heard officials and whistleblowers testify about the systemic waste, fraud and abuse, in many contracts. If the administration wants to save money, it should start increasing oversight over contracts and drop those that are not performing.

Rather than increasing their efforts to eliminate waste, fraud, and abuse in contracting that costs us billions every year, this administration would rather lay off patriotic civilian Federal employees who have dedicated their careers to the Federal Government. The Federal Government is already facing looming crisis in retirements and is working hard to recruit new workers to fill vacancies. Using Federal workers to make a political statement is wrong. It sends a negative message to prospective employees and hurts recruitment efforts in the long run.

Instead of looking to cut the Federal workforce to save money, the President should be holding contractors accountable to reduce costs and ensure

that our fighting men and women in Iraq and Afghanistan have the supplies they need.

Today, I am introducing a bill that would send a clear message to the administration that Federal workers are not bargaining chips.

The idea behind this legislation is simple, rather than laying off Federal workers to close a budget shortfall, the Pentagon should suspend contracts for non-essential services. Many service contractors work side-by-side with Federal workers. There is no reason that Federal workers should get a pink slip for Christmas while the Pentagon continues to spend millions on contractors.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.