Keep Our PACT Act

Mr. Chairman, this bill is a joint product of two committees: the Committee on the Judiciary and the Committee on Financial Services. I very much appreciate the fully cooperative relationship that the gentleman from Michigan and I and the members of the committee staffs have had. Working with him has been a pleasure as he has taken the lead in the more controversial parts of this bill. I say controversial not in denigration but in support.

I think the bankruptcy provisions--which are the product of the Judiciary Committee, not the committee I chair--are essential. I was particularly struck--and I will enter into the Record letters from the National Council of Life Insurers specifically approving the bankruptcy provision, and from the National Association of Realtors also approving the bill.

Obviously, there are people entitled to a variety of opinions, but I think it's relevant to note that two important groups, one involved in housing--the Realtors--and another very, very much involved in finance--the Life Insurance Council--support the bill including the bankruptcy provision.

There is another reason why bankruptcy is relevant to some of the things in the jurisdiction of our committee. Even where there are people willing to modify mortgages, there are some legal tangles. We have this form of a servicer. A servicer is an entity which has been given control or authority over packages of mortgage securities. Even in cases where the servicer has been willing, in some cases, to do a modification, that entity is facing lawsuits from investors who say you can't do it.

There are also second mortgages, that is, even in cases where there are a lot of willing parties to this on both the lender and the borrower's side, the fact that there is such a tangle of legal rights has been an obstacle. Bankruptcy is the only way to cut through that. And given the moderate way in which bankruptcy has been put into this bill, that adds to--let me put it this way, people are saying let's have voluntary modification. But some modifications that are supported by almost everybody cannot go forward because of this.

Beyond that, this bill has some things that are widely supported. For instance, the increase in the insurance deposit limits is supported by the community banks and the National Federation of Independent Business and almost every other group. It does provide to the servicers to whom I just alluded a protection that was a bipartisan production of the gentleman from Delaware (Mr. Castle) and the gentleman from Pennsylvania (Mr. Kanjorski) to say that if you as the servicer modify a loan that you hold on behalf of an investor in ways that will minimize the loss to the investor, you could not be successfully sued because you will have carried out your obligation. It authorizes the payment of a fee of up to a thousand dollars to servicers for modifications because this is a job that many of them did not expect.

It also improves the HOPE for Homeowners program which, when we passed it in July, had some hopes and they weren't realized; and I will acknowledge that we didn't do that well. We were at the time responding to pressures that said don't be too generous. As a result, particularly after the Senate got through with it, it became unworkable.

The impetus for change came in part from the Bush administration. The FHA, under the Bush administration, Secretary Preston and Commissioner Montgomery, said you've made this unworkable. So we have amendments that would make it workable. And what we hope coming together is this: no one ought to be encouraged to go bankrupt or think bankruptcy is an easy path. We do prefer voluntary modifications.

What we have is a package, along with the very good proposals enunciated last week by the President, worked on by Secretary Geithner and Secretary Donovan, who did an excellent job on it, we have a menu of ways using all the powers of the Federal Government, including authority, by the way, that we first gave the administration, the Bush administration, in the TARP bill, which they sadly refused to use. But this administration is using authorities that were given to the Bush administration through Fannie Mae and Freddie Mac, through the TARP, through other ways, through the FDIC and other bank regulators. This enhances the authority to do modifications.

So the result--and this is why it's a package. We strengthen the community banks, in particular, with this increase in the deposit insurance; we provide a set of options other than bankruptcy to modify; and we remove legal obstacles, to the extent we can constitutionally do so, to such voluntary modifications. But we then believe that in some cases, you will still need to go to bankruptcy to deal with these tangles that I mentioned, and we also believe that the fact that there is a bankruptcy looming will be an encouragement to negotiations.

On both the lender's and the borrower's side, we've heard complaints that they have tried to communicate with the other. Some people say, ``I wrote to my lender. He didn't answer.'' Some lenders say, ``I wrote to the borrower. She didn't respond.''

One of the things that the Judiciary Committee did very well--and I think they did an excellent drafting job on this bill--is to say that if you want to go bankrupt, you have to notify your lender and then there is a waiting period.

So this will promote exactly the kind of communication between lenders and borrowers that we hoped would go forward.

National Association of Realtors,

Washington, DC, February 24, 2009.

Dear Representative: When people lose homes to foreclosure,

our communities, the housing market and our economy all

suffer. The National Association of REALTORS'

believes H.R. 1106, the ``Helping Families Save Their Homes

Act,'' includes provisions to minimize foreclosures,

stabilize home values and move the country closer to an

economic recovery.

The bill provides a safe harbor for mortgage servicers who

conduct loan modifications in good faith. Currently few loan

modifications are occurring because servicers face the threat

of investor lawsuits. This provision will relieve servicers

from liability, and allow more loans to be modified.

The bill also reforms the Hope for Homeowners program,

allowing more borrowers to refinance into safe, affordable

mortgages. Despite being well-intentioned, the Hope for

Homeowners program has enjoyed very limited success. The

program's constraints have made it very difficult for lenders

and servicers to participate. H.R. 1106 eases current

restrictions and makes the program more useable, while still

preserving the benefits to homeowners and limiting risks to

the FHA fund and the American taxpayer.

The bill strengthens oversight of FHA-approved lenders. FHA

is experiencing unprecedented volume during this mortgage

liquidity crisis. More and more lenders want to become

involved with FHA. To ensure that predatory lenders are

unable to participate, the bill provides a number of

safeguards to protect the FHA fund and taxpayers from fraud

and abuse.

As progress continues on the bankruptcy provisions within

this bill, NAR would support reasonable and equitable

requirements for judicial review of loan terms for homeowners

who are forced into bankruptcy because they are unable to

qualify for or obtain foreclosure prevention assistance.

The National Association of REALTORS' believes

H.R. 1106 will help millions of homeowners who are at risk of

losing their homes. It will also help neighborhoods avoid the

ramifications of foreclosures and will help our economy on

the road to recovery. We ask you to support this important

bill.

Sincerely,

Charles McMillan,

2009 President.

I yield 1\1/2\ minutes to the gentleman from Oregon (Mr. Blumenauer).

I will yield myself such time as I may consume because the gentleman from California wants to talk about the history and who pressured people into doing this.

Yes, it's true, there is a governmental role here: it is a refusal to regulate subprime loans. In 1994--and party is relevant--the last time before the previous Congress that the Democrats were in the majority, this Congress passed a law directing the Federal Reserve to regulate home loans in the subprime category that were issued by everybody. Bank loans were regulated, nonbanks were not. Alan Greenspan, the Chairman of the Federal Reserve, refused to use the authority and acknowledged in testimony before the Committee on Government Reform late last year that he had refused to use it and that he was mistaken.

So, part of the problem was, yes, there was a lowering of standards because the Federal Reserve refused to impose them. And then, let me quote Mark Zandi, who had been an adviser to John McCain, is now an economist of great repute--he was then, too, obviously--who notes in his book on this crisis that in 2004, the Bush administration decided, as part of its strategy of expanding homeownership, to push for an increase here, including, in 2004, the Bush administration ordered Fannie Mae and Freddie Mac to increase the number of loans they gave to people below the median income. And I will put into the Record my quotation at the time from an article put out by Bloomberg in which I objected to that. Secretary Jackson made them increase by 10 percent the number of loans they had to give to people below the median. And I said I thought that would be bad for Fannie and Freddie and bad for the borrowers because helping people borrow money they can't repay does them no good. And there was then an effort to try to get legislation passed to do what the Federal Reserve refused to do under Mr. Greenspan, regulate subprime loans. But the Republican leadership of the House at the time said we don't want to do this.

There was also concern about Fannie Mae and Freddie Mac. And in 2005, I, as the ranking minority member of the Committee on Financial Services, joined the chairman, a former colleague, Mr. Oxley, in supporting a bill out of our committee to tighten the regulation of Fannie Mae and Freddie Mac. I later was opposed to what was done in the Rules Committee to weaken a housing provision, but I wanted the bill to go forward. And, in fact, that bill went to the Senate with a large majority. I opposed it on the housing ground, but I was for the regulatory part. The Bush administration rejected it. Then Secretary of the

Treasury Snow said he thought the President was wrong. Mr. Oxley said he was very disappointed that the administration wouldn't go forward.

In any case, the Republican-controlled Senate refused to take the bill up. So from 1995 until 2006, under Republican control of the Congress, no bill was passed to regulate Fannie Mae and Freddie Mac better, and nothing was done to restrain inappropriate subprime mortgages.

In 2007, the Democrats returned to the majority. Within 4 months, the Committee on Financial Services had reported on exactly the bill that the Bush administration wanted under Secretary Paulson to tight the regulation of Fannie Mae and Freddie Mac. There was an organization called FM Watch that existed to try to tighten regulation of Fannie Mae and Freddie Mac, and they have been quoted as saying, after the House acted, ``Well, we finally got what we wanted.'' That was in 2007.

So, yes, I regret the fact that in 2005 there was an intra-Republican split between Mr. Oxley and the President, with the Secretary of Treasury on Mr. Oxley's side and Senator Shelby on the President's side, and we got no bill. We got it through the House in 2007. It was then delayed in the Senate, unfortunately. In 2008, I asked the Secretary of the Treasury to put it into the stimulus, the tough regulation of Fannie Mae and Freddie Mac. He couldn't do that at the time. We got it, but we got it too late. But we got it too late because 12 years of Republican rule went by and no bill became law.

Then we had subprime. When we were unable to pass a subprime bill in 2005 because the Republican leadership said no, we, in 2007, brought out a subprime bill. It passed this House. It was a bill to restrict inappropriate subprime loans. It was attacked by the Wall Street Journal--I'll put the editorial in there--it said it was ``Sarbanes- Oxley for housing,'' that we would be depriving people of the chance to buy homes--yeah, people who shouldn't have had that chance. Once again, that was held up in the Senate. But to his credit, Chairman Bernanke, a Bush appointee, used precisely the authority that Alan Greenspan refused to use from 1994, from that statute, and imposed strict restrictions on bad subprime loans.

I think we will go further. And I expect the Committee on Financial Services once again to bring out the bill to restrict inappropriate subprime loans. And I will look for that energy that I've heard from time to time expressed by some of my Republican colleagues about keeping people from being put into homes they shouldn't have. Because last time it was a more partisan fight than it should have been, although the ranking member, who has a very good history of being concerned about this, did join us in voting for the bill.

The only other thing I would say is this--and I would agree that voluntary modification is a good thing. But with the servicer-investor conundrum and with second mortgages, even almost entirely voluntary agreements to modify cannot go forward without bankruptcy.

Fannie, Freddie To Suffer Under New Rule, Frank Says

(By James Tyson)

June 17 (Bloomberg)--Fannie Mae and Freddie Mac would

suffer financially under a Bush administration requirement

that they channel more mortgage financing to people with low

incomes, said the senior Democrat on a congressional panel

that sets regulations for the companies.

The new rule compels the companies to put 57 percent of

their mortgage financing by 2008 toward homes for people with

incomes no greater than area median income. Fannie Mae and

Freddie, the two largest U.S. mortgage finance companies,

must currently meet a 50 percent threshold.

The White House ``could do some harm if you don't refine

the goals,'' said Representative Barney Frank, a member from

Massachusetts on the House Financial Services Committee.

Frank's comments echo concerns of executives at the

government-chartered companies that the new goals will

undermine profits and put new homeowners into dwellings they

can't afford. ``At their outer edges they become

counterproductive--there are not loans to make that will get

repaid,'' Freddie Mac Chief Executive Richard Syron said

Monday in an interview, referring to the new financing rule.

Frank said the administration is aiming to reduce the role

of the two companies in mortgage financing, and has seized on

the higher goals ``as a useful stick by which to beat Fannie

arid Freddie.''

HUD Defends Rule

Alphonso Jackson, secretary of Housing and Urban

Development, said the Bush administration has no hidden

motives in seeking to raise the percentage of financing for

low-income homeowners.

``There is no administration more supportive of Fannie and

Freddie than we are,'' Jackson said today in interview. ``We

are just actualizing what should have been done years ago.''

An agency within HUD, the Office of Federal Housing

Enterprise Oversight, regulates Fannie Mae and Freddie Mac,

which own or guarantee about half the $7.3 trillion U.S.

mortgage market.

The housing guidelines, subject to a public comment period

that ends on July 2, would become law Jan. 1. Referring to

both the White House plans and the coming presidential

election, Frank said, ``nothing can stop them except a change

in November.'' He spoke at a news conference sponsored by the

presidential campaign of Senator John Kerry of Massachusetts.

Frank and housing industry representatives such as Jerry

Howard, chief executive of the National Association of

Homebuilders, say the White House rules fail to focus

financing on multifamily housing and other market segments.

The regulations also don't address a decline in refinancing

and other market changes, they said.

``We don't see how these goals in any way put Fannie Mae

and Freddie Mac into specific types of affordable housing,''

Howard said.

The association, which represents Centex Corp., Toll

Brothers Inc. and about 215,000 other companies in the

housing industry, plans to ask for a 60-day extension of the

public comment period, Howard said.

Referring to the housing goals and the two companies, Frank

said, we want to push them further, but it doesn't make sense

to push them in an undifferentiated way.''

Jackson said his critics should withhold judgment until

after Jan. 1. ``I don't see how people can say something is

not going to work when we have not had a chance to implement

it.''

Mr. Chairman, I will now yield 1 minute to the gentleman from Pennsylvania (Mr. Kanjorski).

Mr. Chairman, in the absence of any correction, I have only one speaker left; so I will reserve the balance of my time.

Mr. Chairman, I yield myself 10 seconds.

The gentleman from Georgia asked about what other contracts. This is precisely the bill to make this like other contracts. Everything else can be declared void in bankruptcy. So the gentleman has it absolutely backwards. This doesn't create an exception to general contract law. It amends one and makes this on the same footing as, quoting the gentleman, all other contracts.

Mr. Chairman, I yield the balance of my time to one of the leaders in the effort to preserve homeownership for deserving people in America and the fight against abuses, the gentlewoman from California (Ms. Waters).

Mr. Chairman, I move that the Committee do now rise.

I thank the gentleman for yielding.

I certainly applaud the committee for trying to do something about this problem, but I'm afraid that this is not the right solution. It actually seeks to help a few at the cost of all homeowners.

First of all, the government seems to be very content these days picking winners and losers. But I don't understand if Mr. Bachus is paying his mortgage and I'm not, why am I necessarily, just because of that, deserving to renegotiate the contract? What is it that the Federal bankruptcy judge will know about me which will make me have the insider advantage over my friend from Alabama? It doesn't make sense. The judge will have to decide, well, was I laid off because of something that I did? Did I bite off more than I should have chosen, because of my irresponsibility, because of the lender's irresponsibility? I think the precedent of this is extremely scary. And why only contracts that involve real estate? What about other contracts that people get involved with in terms of debt?

The fact of this is it's going to also not just put the government in a position of picking winners and losers, but it's going to put more uncertainty in the market. And right now, as I talk to Realtors and bankers and investors, what this market needs on Main Street and Wall Street is knowledge of rules. Rules that govern, regulatory practices, whatever they are, if they're here or if they're here, what Wall Street and the investment community needs to know is what are the rules? We will adjust to them. But here we go one more time increasing uncertainty by changing the rules.

Mr. Chair, the Helping Families Save Their Homes Act (H.R. 1106) would allow bankruptcy judges to reduce the principal owed on a mortgage, a practice often referred to as a ``cramdown.'' Judges would also be able to reduce interest rates or lengthen the term of the mortgage. This will help only a few people while raising the cost of borrowing for thousands of moderate-income and first-time homebuyers.

Although supporters claim that this is a limited provision that applies only to existing mortgages, the cramdown language can easily be amended to make it permanent at a later date--which would then be priced into future mortgages. In addition, the House bill lacks many of the targeted limitations designed to make sure that bankruptcy is a last resort. It even weakens language passed earlier by the House Judiciary Committee that was designed to keep those who filed fraudulent mortgage applications from taking advantage of cramdowns.

H.R. 1106 does contain two important provisions to correct flaws in the housing bailout plan passed last year.

Problems with Cramdowns: Allowing bankruptcy judges to modify mortgages would raise mortgage costs for everyone and even more for first time homebuyers. Cramdowns would add additional risk that mortgages will not be repaid as the contract requires. Lenders must charge for that added risk, and experts estimate that the additional costs would raise mortgage rates by as much as two full percentage points or substantially increase required down payments. This increase would apply to every mortgage applicant in order to ensure that the entire pool of mortgages remains profitable upon resale to the secondary market.

Mortgage companies would greatly expand ``risk based pricing'' of individual mortgages as well. These added costs would fall hardest on moderate-income and first-time homebuyers, who have a higher risk of defaulting on a mortgage. This will price many families out of the housing market.

Further undermine the value of mortgage-backed securities: Banks and other investors are already facing heavy losses not only because mortgage-backed securities have lost much of their value but because of uncertainties about whether the mortgages will be paid. The language in H.R. 1106 increases this uncertainty. Investors will be at risk of both foreclosure and cramdowns that reduce the earnings of these securities. Many cramdown mortgages will later go into foreclosure. Since investors have no idea what this new provision will do to the value of their securities, prices will drop further.

Fail to help many homeowners: Only one-third of all Chapter 13 fliers completes the process successfully and gets the fresh start that bankruptcy promises. The other two-thirds ``pay court fees, pay attorney's fees, pay fees to the bankruptcy trustee, invest time and money to restructure their financial affairs, and then wind up with nothing more than temporary relief. In fact, one third of chapter 13 filers go on to file for bankruptcy again.

Other Provisions in H.R. 1102: The Helping Families Save Their Homes Act also contains a mixture of other housing and financial provisions. These include:

Liability waivers for mortgage servicers that modify mortgages: Mortgage servicers receive payments from mortgages and forward them (after fees) to the owners of the mortgages. As the main contact with homeowners, mortgage servicers should be able to refinance or alter mortgages in order to ensure that the owners get the best possible return, but many fear that unhappy mortgage owners would sue them. The legislation provides these servicers with a safe harbor so long as they act within certain specified boundaries. This is a needed change.

Making $250,000 FDIC and MCUA deposit insurance levels permanent: Last fall, Congress increased deposit insurance coverage by FDIC and NCUA to $250,000 until December 2009. This bill makes that change permanent and also increases the agencies' borrowing authority to cover their losses. Borrowing authority is used only if the deposit insurance fund runs out. This is a useful change but unlikely to be needed.

Keeping predatory lenders from taking advantage of FHA programs: Section 203 of H.R. 1106 makes it easier for HUD and the FHA to prevent predatory lenders from underwriting FHA-guaranteed home loans. This is a needed reform.

Trying to fix the Hope for Homeowners program: Last summer, Congress created Hope for Homeowners, an FHA-based program that it originally. FHA claimed the program which is run jointly with Treasury, would help up to 2 million homeowners. To date, according to the FHA, it has actually helped about 500. The legislation makes a number of changes that will make it more attractive to homeowners, raise the cost of it by $2.3 billion, but is unlikely to otherwise improve it.

Making the Problem Worse: Mortgage cramdowns would further destabilize an already damaged housing market while increasing mortgage costs for future borrowers. The useful changes it makes are necessary but in no way overcome the downsides associated with the passage of this legislation.

Analysis of the Homeowner Affordability and Stability Plan

Two of the bill's three key components are designed to provide subsidies and benefits primarily to homeowners who, while still current in their payments, may not be able to take advantage of attractive refinancing opportunities at lower interest rates because the value of their home has declined beyond the loan-to-value ratio permitted by rules governing mortgage investments made by Fannie Mae and Freddie Mac. The second such provision of the plan would provide taxpayer and investor subsidies to mortgage borrowers who have taken on more debt than they could safely manage, including, in some cases, credit card and automobile debt. The third component of the plan encourages the enactment of legislation allowing bankruptcy judges to alter the terms of certain mortgage loans, a practice that to date has been prohibited by federal law.

The legislation suffers from 12 specific weaknesses and risks: The plan's Stability Initiative bestows new and costly benefits on those who took on more debt than they could handle, including credit cards, automobile loans, and mortgages (including refinancing and seconds). Worse, the value of the benefits will vary in direct proportion to the degree of borrower financial irresponsibility and the intensity of community land regulations. Homeowners with a first mortgage as large as $729,750 are eligible for the initiative, meaning that the well-to- do will receive more financial benefits than those of modest means. And as analysts at one nationwide financial firm noted, ``The modifications would go disproportionately to borrowers who overstretched and who lied about their income.'' This moral hazard sends a clear message to the American people: The worse the behavior, the greater the reward.

Under this Stability Initiative, borrowers with a ratio of mortgage debt service to income greater than 31 percent can have their mortgage interest rate reduced to as little as 2 percent if that is what it takes to achieve the 31 percent ratio-with government paying half the subsidy and the investor/lender surrendering the other half. If this concession is insufficient to reach 31 percent. Eligible borrowers may also have loans that are as much as 50 percent greater than the value of the house.

It is also unlikely that, under the Stability Initiative, borrowers with a ratio of debt service payment to income as high as 55 percent-- because of combined mortgage, credit card, and automobile debt--will be eligible to receive temporary payment reductions if they merely agree to HUD-approved counseling. Such borrowers may then be eligible for permanent payment reductions. This reduction scheme will be disclosed in rules that the Administration has announced it will release on March 4.

Because the investor/lenders will be responsible for a portion of the mortgage rate reduction, this program will deter private sector investment in all but the best mortgages. Combined with the proposed ``cramdown'' bankruptcy proposals, the net effect will be to require a substantial and permanent federal presence in the housing finance market to accommodate those many potential borrowers who are not highly qualified.

The plan also includes a formal endorsement by the President of a bankruptcy provision that allows judges to alter the terms of certain mortgages. This provision will increase the risk to lenders of all mortgages. The industry is already treating this as a permanent measure. Increased risk requires higher costs to compensate lenders, and either down payments or interest rates would have to rise, while potential borrowers with checkered credit histories would be denied access to credit. However, these costs would not rise evenly for all borrowers: Higher-risk borrowers (first-time buyers and moderate- income workers) would see costs rise more and have fewer opportunities to buy a house.

Anticipating such criticisms, the proposal contends that it will ``seek careful changes to personal bankruptcy provisions.'' However, because any changes in bankruptcy law must be passed in legislation, this outcome may merely be wishful thinking. As the President wants to make sure that ``millionaire homes don't clog bankruptcy courts,'' mortgages eligible for judicial ``cramdown'' cannot exceed $729,750 in value. Moreover, the most recent version of the legislation weakens language adopted earlier by the House Judiciary Committee to prevent borrowers who committed fraud in their mortgage application from taking advantage of cramdown.

The plan's Refinancing Initiative creates a new right for American borrowers now current in their mortgage payments; the right to refinance their home at a lower interest rate even

if the quality of the loan--as measured by the loan-to-value ratio-- would otherwise pose a risk to the lender. As such, this proposal establishes the act of being highly leveraged or slightly ``underwater'' (the amount that a borrower owes on his or her mortgage is more than the value of the house) as a legitimate reason to default, and as a policy problem worthy of taxpayer support and federal intervention. The creators of this new right fail to recognize that many other consumer credit markets operate comfortably, successfully, and safely despite the fact that many borrowers are underwater the minute they sign the contract--notably home improvements, mobile homes, automobiles, RVs, and HDTV's. Though those borrowers do expect to be ``underwater'' for these kinds of purchases, it raises the question of whether future legislation will extend this concession to car loans and credit card debt, which are also experiencing significant levels of default.

Only borrowers with loans held or repackaged by the federally controlled and subsidized Fannie Mae and Freddie Mac will be eligible to exercise this new right to refinance. Borrowers whose loans are held by private investors are denied this right, further distorting the housing markets with government-selected winners and losers.

To date, the several, federal loan modification programs that have been put in place have had very limited success, and the rate of failures exceeds that of successes, especially for loans where one or more payments have been missed. For loans that were four months past due at time of modification, the recidivism rate is 80 percent after 12 months. For loans one month past due, the recidivism rate after 12 months is 60 percent. With the nationwide decline in house prices accelerating in recent months, the risk of recidivism under the new program could remain at high levels.

The program will cost $275 billion ($75 billion for problem mortgages and $200 billion for Fannie Mae and Freddie Mac).

Obama's plan will take a great deal of time to implement. A recent MarketWatch.com articles notes that loan refinancing applications are up 47 percent at a time when a substantial portion of the loan originating infrastructure has disappeared due to bankruptcy and bank consolidation. The prospect that a shrunken mortgage lending system could expeditiously accommodate the 7-9 million borrowers expected by the Obama plan is wishful thinking. The result will be long waits for refinancing that will come too late for some borrowers and may also crowd out efforts by unsubsidized borrowers to refinance due to the generous financial incentives offered to servicers participating in the new federal program.

Perhaps the most troubling part of the plan is the increased reliance being placed on the now federally controlled Fannie Mae and Freddie Mac, whose tax and corrupt behavior over the past decade was an important contributing factor to the present economic crisis. Although nominally privately owned, both are now run by the U.S. Treasury, whose massive holdings of preferred shares in both give it a huge implicit ownership stake. As is clear from the refinancing plan--which will reduce Fannie's and Freddie's earnings and thus weaken them further-- the two have become little more than the federal government's captive mortgage financing banks to be used at will for any housing policy initiatives that the President and/or Congress wish to pursue. And with the plan's many provisions discouraging the private sector from getting involved in mortgage finance, this plan substantially advances the de facto nationalization of America's housing finance system for all but the ``jumbo'' mortgages that exceed conforming limits.

Wait a minute. Can we get a little history lesson here? Does anybody remember the $700 billion that we gifted to the banks? When they were on their knees, they took Federal money. Many of us voted against it because we wanted to know what was going to happen to the American public.

Why is my friend talking about the young people who were hurting in the administration before us? They hurt more than young people. They told us that we needed $700 billion of government money to give to the banks. We asked the banks to voluntarily modify the loans. We begged them to do it. We worked with them. We spoke with them. They did not do it.

Today, we vote for the little person, for the individual who has been responsible, who has been working like a constituent in my constituency for 18 years as a cafeteria worker, saving up money, who has got a small bungalow, but it was at an adjustable rate. That's not that lady's fault. She is still working, but she has fallen behind. She will go into court under this bill. She will be able to use the FHA and VA. They will be able to look to voluntarily modify before the court.

The only thing that this does is it allows, after all things have happened, for you to be able to go into the courthouse, stand before a judge and be assessed on your own responsibility. We have a manager's amendment. If there's any profit to be made, it goes back to the lender, to the bank. Mr. Bank and Mrs. Bank, why didn't you do this on your own? We would have preferred you to have done it.

I'm looking forward to introducing legislation where, for people who've been responsible and who go in to redo their mortgages, their issue will not be part of their credit score, of their potential foreclosure, of their back payments, because it is not their fault. We've fallen into a crisis, into an abyss.

So, my friends, I don't know how we can stand on the other side of the aisle talking about the poor little banks. We asked the banks to reorder people's mortgages. People in my district begged for them to do so, but when they called, there was nothing but a 1-800 number.

Support this legislation. It's the little fellow's day today. We want people to save their homes. We're saving America.

Mr. Chairman, I rise in strong support of H.R. 1106, ``Helping Families Save Their Homes in Bankruptcy Act of 2009.'' I would like to thank Chairman Conyers of the House Judiciary Committee and Chairman Barney Frank of the Financial Services Committee for their leadership on this issue. Mr. Chairman, I urge my colleagues to support this bill because it provides a viable medium for bankruptcy judges to modify the terms of mortgages held by homeowners who have little recourse but to declare bankruptcy.

This bill could not have come at a more timely moment. Just a day after the President's address before the Joint Session of Congress where President Obama outlined his economic plan for America and discussed the current economic situation that this country is facing.

To be sure, there are many economic woes that saddle this country. The statistics are staggering.

Home foreclosures are at an all-time high and they will increase as the recession continues. In 2006, there were 1.2 million foreclosures in the United States, representing an increase of 42 percent over the prior year. During 2007 through 2008, mortgage foreclosures were estimated to result in a whopping $400 billion worth of defaults and $100 billion in losses to investors in mortgage securities. This means that one per 62 American households is currently approaching levels not seen since the Depression.

The current economic crisis and the foreclosure blight have affected new home sales and depressed home value generally. New home sales have fallen by about 50 percent. One in six homeowners owes more on a mortgage than the home is worth raising the possibility of default.

Home values have fallen nationwide from an average of 19% from their peak in 2006 and this price plunge has wiped out trillions of dollars in home equity. The tide of foreclosure might become self-perpetuating. The nation could be facing a housing depression--something far worse than a recession.

Obviously, there are substantial societal and economic costs of home foreclosures that adversely impact American families, their neighborhoods, communities and municipalities. A single foreclosure could impose direct costs on local government agencies totaling more than $34,000.

I am glad that this legislation is finally on the floor of the United States House of Representatives. I have long championed in the first TARP bill that was introduced and signed late last Congress, that language be included to specifically address the issue of mortgage foreclosures. I had asked that $100 billion be set aside to address that issue. Now, my idea has been vindicated as the TARP today has included language and we here today are continuing to engage in the dialogue to provide monies to those in mortgage foreclosure. I have also asked for modification of homeowners' existing loans to avoid mortgage foreclosure. I believe that the rules governing these loans should be relaxed. These are indeed tough economic times that require tough measures.

Because of the pervasive home foreclosures, federal legislation is necessary to curb the fallout from the subprime mortgage crisis. For consumers facing foreclosure sale who want to retain their homes, Chapter 13 of

the Bankruptcy Code provides some modicum of protection. The Supreme Court has held that the exception to a Chapter 13's ability to modify the rights of creditors applies even if the mortgage is undersecured. Thus, if a Chapter 13 debtor owes $300,000 on a mortgage for a home that is worth less than $200,000, he or she must repay the entire amount in order to keep his or her home, even though the maximum that the mortgage would receive upon foreclosure is the home's value, i.e., $200,000, less the costs of foreclosure.

Importantly, H.R. 1106 provides for a relaxation of the bankruptcy provisions and waives the mandatory requirement that a debtor must receive credit counseling prior to the filing for bankruptcy relief, under certain circumstances. The waiver applies in a Chapter 13 case where the debtor submits to the court a certification that the debtor has received notice that the holder of a claim secured by the debtor's principal residence may commence a foreclosure proceeding against such residence.

This bill also prohibits claims arising from violations of consumer protection laws. Specifically, this bill amends the Bankruptcy Code to disallow a claim that is subject to any remedy for damages or rescission as a result of the claimant's failure to comply with any applicable requirement under the Truth in Lending Act or other applicable state or federal consumer protection law in effect when the noncompliance took place, notwithstanding the prior entry of a foreclosure judgment.

H.R. 1106 also amends the Bankruptcy Code to permit modification of certain mortgages that are secured by the debtor's principal residence in specified respects. Lastly, the bill provide that the debtor, the debtor's property, and property of the bankruptcy estate are not liable for a fee, cost, or charge incurred while the Chapter 13 case is pending and that arises from a debt secured by the debtor's principal residence, unless the holder of the claim complies with certain requirements.

I have long championed the rights of homeowners, especially those facing mortgage foreclosure. I have worked with the Chairman of the House Judiciary Committee to include language that would relax the bankruptcy provisions to allow those facing mortgage foreclosure to restructure their debt to avoid foreclosure.

manager's amendment

Because I have long championed the rights of homeowners facing mortgage foreclose in the recent TARP bill and before the Judiciary Committee, I have worked with Chairman Conyers and his staff to add language that would make the bill stronger and that would help more Americans. I co-sponsored sections of the Manager's Amendment and I urge my colleagues to support the bill.

Specifically, I worked with the Chairman Conyers to ensure that in section 2 of the amendment, section 109(h) of the Bankruptcy Code would be amended to waive the mandatory requirement, under current law, that a debtor receive credit counseling prior to filing for bankruptcy relief. Under the amended language there is now a waiver that will apply where the debtor submits to the court a certification that the debtor has received notice that the holder of a claim secured by the debtor's principal residence may commence a foreclosure proceeding against such residence.

This is important because it affords the debtor the maximum relief without having to undergo a slow credit counseling process. This will help prevent the debtors credit situation from worsening, potentially spiraling out of control, and result in the eventual loss of his or her home.

Section 4 of the Manager's Amendment relaxes certain Bankruptcy requirements under Chapter 13 so that the debtor can modify the terms of the mortgage secured by his or her primary residence. This is an idea that I have long championed in the TARP legislation--the ability of debtors to modify their existing primary mortgages. Section 4 allows for a modification of the mortgage for a period of up to 40 years. Such modification cannot occur if the debtor fails to certify that it contacted the creditor before filing for bankruptcy. In this way, the language in the Manager's Amendment allows for the creditor to demonstrate that it undertook its ``last clear'' chance to work out the restructuring of the debt with its creditor before filing bankruptcy.

Importantly, the Manager's Amendment amends the bankruptcy code to provide that a debtor, the debtor's property, and property of the bankruptcy estate are not liable for fees and costs incurred while the Chapter 13 case is pending and that arises from a claim for debt secured by the debtor's principal residence.

Lastly, I worked to get language in the Manager's Amendment that would allow the debtors and creditors to get to negotiate before a declaration of bankruptcy is made. I made sure that the bill addresses present situations at the time of enactment where homeowners are in the process of mortgage foreclosure. This is done with a view toward consistency predictability and a hope that things will improve.

Mr. Chairman, I yield 2 minutes to the gentleman from South Carolina (Mr. Barrett).

Mr. Chairman, I yield 1\1/2\ minutes to the gentleman from Colorado (Mr. Coffman).

At this time, Mr. Chairman, I yield 2 minutes to the gentleman from California (Mr. Royce).

I yield an additional minute to the gentleman from California.

Mr. Chairman, I yield 2 minutes to the gentlelady from Illinois (Mrs. Biggert).

Mr. Chairman, I yield 2 minutes to the gentleman from Texas (Mr. Hensarling).

Mr. Chairman, I yield 1\1/2\ minutes to the gentleman from Georgia (Mr. Kingston).

Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, I would like to introduce into the Record an article from the New York Times, dated September 30, 1999, and here's what it says:

``Fannie Mae, the Nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton administration to expand mortgage loans among low and moderate income people . . . ''

And then they quote Franklin Raines: ``Fannie Mae has expanded home ownership for millions of families in the 1990s by reducing down payment requirements. Yet there remains too many borrowers whose credit is just below what our underwriting has required and who have been relegated to paying significantly higher mortgage rates . . .''

Well, I think we know the rest was history. They lowered their standards, they moved into this new risky form of lending, and then last July the American people were submitted the bill, and that bill was a half trillion dollars, and every day we're adding billions of dollars to that tab. And there were people at that time who warned that it was risky and who warned that ultimately the taxpayers may have to step in and bail out Freddie and Fannie. Now today we are being asked to adopt legislation, the HOPE for Homeowners Program, which would require FHA to insure loans with a greater risk of default and require a higher per loan taxpayer subsidy.

In fact, the Congressional Budget Office says that this program is going to help 25,000 borrowers, but it's going to cost up to $579 billion. Now, coupled with the new projection that the HOPE for Homeowners is going to only help 25,000 borrowers, that's $23,000 per borrower that you're going to ask the American people to pay or expose them to that risk.

I'm going to give you the same warning that was given in 1999. It's the taxpayer that's going to have to take up the cost of this subsidy and this risk. And for that reason, I am not willing to burden the taxpayer with another dollar.

These are terrible economic times. All taxpayers are under risk. Many taxpayers are facing loss of their job. At a time like this, an uncertain time like this, to further expose the taxpayers of this country, the American families we represent, to another half trillion dollars' worth of exposure is not something that I'm willing to do.

I am willing, and I have said many times I was willing, to endorse the Kanjorski-Castle provision, which would allow servicers with lenders and borrowers to work out terms, and I applaud that provision in the bill. Strip out this $23,000 per-loan program and we will all go down and vote for Castle-Kanjorski.

And let me say this: we have had one too many bailouts. We don't need another one. It's time that we started watching out for the taxpayer and help borrowers without submitting the bill to hardworking Americans.

[From the New York Times, Sept. 30, 1999]

Fannie Mae Eases Credit To Aid Mortgage Lending

(By Steven A. Holmes)

In a move that could help increase home ownership rates

among minorities and low-income consumers, the Fannie Mae

Corporation is easing the credit requirements on loans that

it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving

24 banks in 15 markets--including the New York metropolitan

region--will encourage those banks to extend home mortgages

to individuals whose credit is generally not good enough to

qualify for conventional loans. Fannie Mae officials say they

hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home

mortgages, has been under increasing pressure from the

Clinton Administration to expand mortgage loans among low and

moderate income people and felt pressure from stock holders

to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage

companies have been pressing Fannie Mae to help them make

more loans to so-called subprime borrowers. These borrowers

whose incomes, credit ratings and savings are not good enough

to qualify for conventional loans, can only get loans from

finance companies that charge much higher interest rates--

anywhere from three to four percentage points higher than

conventional loans.

``Fannie Mae has expanded home ownership for millions of

families in the 1990s by reducing down payment

requirements,'' said Franklin D. Raines, Fannie Mae's

chairman and chief executive officer. ``Yet there remain too

many borrowers whose credit is just a notch below what our

underwriting has required who have been relegated to paying

significantly higher mortgage rates in the so-call subprime

market.''

Demographic information on these borrowers is sketchy. But

at least one study indicates that 18 percent of the loans in

the subprime market went to black borrowers, compared to 5

percent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending,

Fannie Mae is taking on significantly more risk, which may

not pose any difficulties during flush economic times. But

the government-subsidized corporation may run into trouble in

an economic downturn, prompting a government rescue similar

to that of the savings and loan industry in the 1980s.

``From the perspective of many people, including me, this

is another thrift industry growing up around us,'' said Peter

Wallison a resident fellow at the American Enterprise

Institute. ``If they fail, the government will have to step

up and bail them out the way it stepped up and bailed out the

thrift industry.''

Mr. Chair, there are elements in this legislation that I support, such as permanently increasing deposit insurance coverage limits to $250,000 that will strengthen our banking system and help avoid destabilizing bank runs. The Kanjorski-Castle language, providing a safe harbor for mortgage servicers, is a timely and targeted solution that encourages loan modifications that benefit both homeowners and investors. It is a commonsense approach to help keep American families in their homes.

And while I do support certain provisions in this bill--and did so in Committee--I oppose the legislation as a whole, and urge my colleagues to do the same.

Enacted by Congress last July, Hope for Homeowners has been a failure by virtually every metric. And rather than cut taxpayer losses, this legislation aims to fix a fundamentally unfixable program, while abandoning key taxpayer safeguards.

Initially, proponents claimed this program would provide relief to 400,000 borrowers. They were wildly off mark. In fact, the program has received a mere 400 applications and closed on just 43 new loans.

If today's legislation was enacted, the Hope for Homeowners program would allow FHA to insure loans with greater risk of default and require a higher per loan taxpayer subsidy. The non-partisan Congressional Budget Office (CBO) projects that even with these changes, the program will help a mere 25,000 borrowers, at best. Far from the 400,000 promised, and far from a success.

According to CBO research, taxpayers may be responsible for up to $579 million as a result of potential defaults. This nearly billion dollar figure, coupled with the new projection that Hope for Homeowners will only assist at most 25,000 borrowers, could potentially cost the taxpayer an astounding $23,000 per loan.

Throughout the campaign, President Obama almost daily expressed his goal of ending wasteful, underperforming and duplicative government programs. How many times do we have to attempt to change a program that has helped 43 borrowers nationwide? Under President Obama's criteria, HOPE for Homeowners would certainly qualify as a program to be cut.

And worse, bankruptcy cram-down provisions included in this bill will further reward poor decisions made by a small amount of individuals and lenders, while adding uncertainty to the market and increasing mortgage costs for the vast majority of Americans.

Congress should be asking: who is this legislation intended to help, and is it fair? Will this bill reward irresponsible behavior and punish those who have played by the rules and lived within their means? And how will this legislation stimulate the economy?

Times are tough for American families--we all know that. But merely throwing good taxpayer money after bad is not the solution to our economic problems. We must consider the long-term consequences of our actions and how working American families and taxpayers will be affected. This legislation is not the answer. I urge my colleagues to vote ``no.''

Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, our country has fallen into a serious economic recession, a recession that is worsened by the foreclosure crisis. Until we address the rising number of foreclosures, it will be difficult for the economy to recover.

But some of what is in this bill we consider today will be helpful. Providing loan servicers a safe harbor from the threat of litigation if they offer borrowers meaningful loan modification will, in fact, help blunt the crisis.

But the bill also includes many counterproductive components, especially the bankruptcy provision. This bankruptcy provision not only will fail to solve the foreclosure crisis, but also will make the crisis deeper, longer and wider.

Allowing bankruptcy judges to rewrite mortgages will increase the overall cost of lending. Lenders and investors will hesitate to put up capital in the future if they fear that judges will rewrite the terms of their mortgage contracts. Less available capital and increased risk means that borrowers will pay higher interest rates in the future.

Allowing bankruptcy judges to rewrite mortgages will also encourage borrowers to file for bankruptcy. Under this bill, a borrower will be able to reduce, for example, a $500,000 mortgage to $400,000. When housing prices rise in the future, that borrower has no obligation to pay back the $100,000 amount they crammed down. Thus, the borrower receives a $100,000 windfall. And experts predict that receiving this windfall will provide an incentive for borrowers to file for bankruptcy.

If bankruptcy filings increase as a result of this legislation, which is predicted, it is unlikely that the country's only 368 bankruptcy judges could handle the additional caseload in an effective manner. This will prolong the crisis as borrowers wait for their bankruptcy plan to be court-approved.

In fact, even Senator Durbin, the primary sponsor of this legislation in the Senate, has stated that he is ``willing to restrict'' this legislation to subprime mortgages in an effort to make this proposal ``reasonable.''

So, the legislation we are considering today, and the ``Housing Affordability and Stability Plan'' announced by the President last Tuesday, really amount to another entitlement program, a program that comes at the expense of the 92 percent of the homeowners who are making their payments on time.

And it is a program that benefits lenders who wrote irresponsible loans and borrowers who borrowed more than they could afford. In other words, this legislation will punish the successful, tax the responsible, and hold no one accountable.

If we pass this legislation, what message does it send to responsible borrowers who are making their payments on time? How can we ask them to foot the bill for their neighbors' mortgages? What are homeowners to think if they pay back the full amount of principal they owe, while others receive a government-granted reduction in principal?

We need to do everything we can to help solve the foreclosure crisis, but we need to do so in a manner that doesn't bankrupt the taxpayers or our financial system and that is, in fact, fair to all.

And as we work to solve the foreclosure crisis, we need to remember how we got here. As the President said in his address to Congress on Tuesday, ``It is only by understanding how we arrived at this moment that we'll be able to lift ourselves out of this predicament.''

This foreclosure crisis was brought on largely by irresponsible mortgage policies. Those policies were implemented by lenders and supported by government-sponsored entities like Fannie Mae, who were all too willing to put profits ahead of prudence. Their irresponsible behavior was encouraged by Members of Congress and the Clinton administration. Too often borrowers, spurred on by cheap credit and little or nothing as a down payment, borrowed more than they could afford.

The mortgage bankruptcy provisions in this bill are not the answer. Allowing bankruptcy modification of home

mortgages will be costly, generate unintended consequences, and likely delay the resolution of the foreclosure crisis itself.

If we're going to enact this bankruptcy provision, despite all of its flaws, we should at least limit relief to subprime and non-traditional mortgages. We should provide bankruptcy judges with clear guidance on the procedure to follow in modifying the terms of home mortgages, guidance that would make lowering payments to an affordable level the paramount goal of bankruptcy modification. And we should provide much stricter provisions for allowing a lender to recapture any principal that is reduced in bankruptcy if the home is later sold at a profit.

Mr. Chairman, this bill, and the amendments we are going to consider today, provide none of these safeguards.

I urge my colleagues to vote against this bill.

I reserve the balance of my time.