Understanding and Research of PLS Act

Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Madam President, as part of the debate on the McCain- Shelby-Gregg amendment, I wish to take this opportunity this afternoon to discuss the history of Fannie Mae and Freddie Mac from my perspective. By doing this, I want to emphasize past Republican attempts at regulating and reforming these institutions, while also discussing their role in the financial crisis.

The government-sponsored enterprises that we call Fannie Mae and Freddie Mac were key players in the collapse of the U.S. housing market. Their multitrillion dollar portfolios gave them the purchasing power to drive markets. In addition, false presumptions about their housing finance expertise and their connections to the government gave them further power to influence the housing market. And let us not forget the GSEs' nationwide lobbying and public affairs apparatus that was designed to keep reformers at bay and their supporters flush with cash.

When the GSEs began to buy subprime securities, other firms, including most of the Wall Street banks, took this as a signal that subprime mortgage securities were safe and worthwhile investments. In effect, Fannie Mae and Freddie Mac placed the Good Housekeeping ``Seal of Approval'' on these risky instruments. As a result, the rest of the market engaged in this practice, and the race to the bottom began. Ultimately, the GSEs' collapse lit a wildfire that burned throughout the financial markets.

Due to their miscalculations, Fannie Mae and Freddie Mac have been placed in conservatorship and have already cost the taxpayers well over $100 billion. Just last week, we learned that the GSEs will need another $20 billion in taxpayer assistance for their losses during the previous quarter.

This did not have to happen. For years, the warning signs were flashing, and Republicans made multiple attempts to adopt the necessary reforms. Unfortunately, those efforts were opposed by Democrats in the Senate Banking Committee and ultimately caused the many efforts put forth by Republicans to stall in the Senate.

In 2003, as chairman of the Banking Committee at that time, I held multiple hearings on proposals for improving the regulation of the GSEs. I wish to read a portion of my opening statement from one of those hearings. I quote from that time:

The enterprises are large institutions. Collectively,

Fannie Mae and Freddie Mac carry $1.6 trillion in assets on

their balance sheets and have outstanding debt of almost $1.5

trillion. The Federal Home Loan Bank System is not far

behind, with combined assets of over $780 billion and

outstanding advances to member institutions of $495 billion.

Due to the importance of the housing GSEs' mission, and the

size of their assets, I believe that the enterprises require

a strong, credible regulator.

I further read from the statement then:

I remain concerned that the current regulatory structure

for housing the GSEs is neither strong nor credible.

At this same hearing, it became apparent that the two parties had very different perspectives regarding the need for reform. One of my Democratic colleagues noted--and it is in the record:

There is an old expression, if it ain't broke, don't fix

it. I think some of us here in the Senate believe that when

we try to fix things that aren't really broken, we can end up

doing more harm than good.

Notwithstanding the mindset on the other side of the aisle, my Republican colleagues and I persevered, and we remained engaged in the effort to reform the GSEs by holding numerous hearings and closely tracking the GSEs' activities at that time.

We decided those who believed ``things aren't really broken'' were wrong. In the face of strong Democratic opposition and a relentless lobbying campaign by the GSEs and their supporters, we proceeded with a markup of the Federal Housing Enterprise Regulatory Reform Act of 2004.

I wish to again read portions of my brief opening statement from that markup which lays out the issues and the responses we crafted to address the problems of the GSEs then:

This afternoon the committee will consider S. 1508, a bill

to address regulation of the housing GSEs.

Today, we are faced with the most important decisions

considered by this committee in years--determining the

strength, independence and credibility of regulation of our

nation's Government Sponsored Housing Enterprises. The

strength, independence and credibility of this regulatory

system have tremendous implications for the future health and

vitality of our housing markets, our capital markets, and the

economy as a whole.

I continue to quote the statement:

Freddie Mac and Fannie Mae currently have $1.7 billion debt

outstanding. To provide some perspective, our nation's

Treasury debt in the hands of the public stands at just over

$4 trillion. The Federal Home Loan Bank System has also grown

significantly since the 1990s and has a vastly expanded

membership base.

Its current regulator is not up to the task of providing

adequate oversight of its significant role.

My statement continued:

Fannie Mae is the second largest financial institution in

the United States. Freddie Mac is fourth. Their debt is held

by foreign central banks, insurance companies, money center

banks and community banks. Because of the interest rate risk

these GSEs must manage, they have an extensive network of

derivative contracts. Should one of these institutions

encounter significant financial difficulty it could make the

S&L crisis pale by comparison.

I was here speaking as an early member of the Banking Committee, as was Senator Dodd, during the bailout of the S&Ls. And it was no pretty matter. It ended up costing the taxpayers at least $130 billion.

I continue:

This experience has only reaffirmed my resolve to ensure

such a debacle never revisits the taxpayer. And, quite

simply, the real truth is we cannot afford a crisis of the

magnitude a failing GSE would pose.

I approach this markup today with a firm appreciation of

the gravity and relevance of what we do here today. I state

again, as I have before--I support the housing missions of

the GSEs. Home ownership is the primary source of wealth for

many Americans. It fosters strong communities and promotes

stability for children and families.

But, and I believe there is consensus in this Committee on

this one point at least, they are not well-regulated and,

therefore, pose significant risk to the taxpayer and the

markets they serve.

To be clear: they are not well-regulated because the

regulatory structures and authorities that Congress created

are insufficient and weak by design.

And that is what the draft before us is all about.

Reaffirming the important mission of GSEs, creating a

regulator that has all the tools and independence that other

first class financial regulators require, and protecting the

taxpayer. These are the guiding principles that animate the

draft that I have put forth before the Banking Committee

today.

Unfortunately for the taxpayers of this country, politics got in the way of advancing credible public policy then. Apparently, the Democrats felt it was better to block necessary change, adhere to the status quo, and ignore the risk to the financial system, all while leaving the taxpayers fully exposed.

We, the same Republicans who have been characterized by Democrats as being pro-Wall Street and antiregulation throughout this process, were trying to create a stronger regulator, raise capital standards, reduce risk taking, and put in place a resolution regime that would limit taxpayer exposure in the event of a firm failure.

That was a number of years back. I wish to revisit the words of one of my then-Democratic colleagues who made the following statement--and it is in the record--as we debated the merits of the Republican GSE reform bill at that time:

Lord only knows where the economy would be today if it were

not for the stability of the housing market in the midst of

so much turbulence and the ability of Americans to draw down

some of their home equity to engage in consumer purchases.

Then, as we stood on the precipice of a housing and financial meltdown, my Democratic colleagues were opposing more regulation and promoting more consumer spending. As if that were not bad enough, we were encouraging homeowners to raid the home's equity to finance their purchases. And look where it brought us.

Another Democrat took issue with the fact that we attempted to give the regulator the power to place a GSE into receivership:

Receivership, first, it does not have to be in the bill,

but, second, to allow a regulator who may not like this

institution to then sort of dole out little pieces of it one

way or another and weaken the fundamental structure of Fannie

and Freddie easily leads to its demise.

I am not sure whether my colleagues then understood the basic concept behind establishing an orderly resolution process, but I hope the lesson has now been learned. Ironically, Democratic opposition to strong reform actually produced the exact outcome my colleague feared. When reform stalled in the face of Democratic objections, investors once again viewed Fannie Mae and Freddie Mac as ``too big to fail.'' They were confident that Congress and the U.S. Government would never allow them to go under. This, of course, gave the GSEs a significant financing cost advantage which led to their explosive growth and excessive risk taking.

Finally, and most telling, one of my Democratic colleagues was concerned about how Wall Street might interpret the regulatory changes that Republicans were advocating, stating:

It is a fact that just mere speculation about the prospects

of some provisions in the bill is sending shock waves through

Wall Street.

Really?

When Wall Street became concerned that our legislation at that time would provide a stronger regulator, require higher capital standards, mandate less risk taking, and establish a well-designed resolution regime, the Democrats came to Wall Street's rescue, not the Republicans.

When the choice was between Main Street and Wall Street, the Democrats made it absolutely clear whose side they were on. They chose Wall Street, and Wall Street ultimately paved the road that led to this collapse.

I ask unanimous consent to have printed in the Record a copy of the recorded vote of the proceedings of that day in the Senate Banking Committee. That result was a party-line vote with all 12 Republicans voting for GSE reform and all Democrats opposing it.

Madam President, that was not the end of the story, though. More than 1 year later, we tried again to pass these important reforms. The Banking Committee held more hearings leading to the markup of S. 190, the Federal Housing Enterprise Regulatory Reform Act of 2005. I will not read my entire statement from this markup, but I will read a part of it that describes the commonsense steps that we were attempting to take with our newest effort to pass then GSE reform. I quote from that markup:

My legislation creates a new regulator with combined

oversight for both the safety and soundness and the housing

mission of Fannie Mae, Freddie Mac, and the Federal Home Loan

Bank System.

The new regulator will have general regulatory authority

over all housing GSEs, including enhanced authority over

capital requirements, and enforcement and prompt corrective

action authorities that are comparable to those of the bank

regulatory agencies.

Among other enhanced regulatory authorities, the bill we

will consider today includes clear direction on portfolio

review for compliance with safety and soundness, mission and

systemic risk.

Under this proposal, the enterprises are permitted to hold

those assets which promote the enterprises' mission in the

housing market.

The bill also transfers the product review function from

HUD to the new regulator and creates a two-tier approval

process through which the enterprises must receive approval

prior to offering any new product.

The bill also establishes new criteria for approval of a

product that will ensure the enterprises remain focused on

their statutory mission of facilitating a secondary mortgage

market.

The new regulator will also have the power to conduct an

orderly resolution of a failing or insolvent GSE through a

receivership process. This clear and definitive process for

dealing with a troubled enterprise is a critical tool for the

credibility and strength of a new regulator.

Madam President, unfortunately, the Democrats did not share my view of increasing regulations on the GSEs, and their comments during the second attempt to pass meaningful reforms are telling. One of my Democratic colleagues stated then, ``When the sink is leaking, you do not tear down the house, especially if the house has served you well.'' Another recalled a critique he read of the bill before the markup, which claimed, ``It is like trying to cure the common cold with chemotherapy.''

In fact, at one hearing, one of my Democratic colleagues expressed an interest in hearing how the roles of the GSEs might be increased, when he explained:

I am not only interested in hearing about the role GSEs

currently play in the mortgage market, I am also interested

in how their commitment to home ownership and affordable

housing can be expanded.

In the end, the result of our 2005 markup was the same as our 2004 markup--a strict party-line vote with all 11 Republicans supporting the reforms and all 9 Democrats opposing them. Unfortunately, the Democrats once again sided with Wall Street and the special interests by rejecting GSE reform and any attempt to move the legislation beyond the Banking Committee.

Madam President, I ask unanimous consent to have printed in the Record a copy of that recorded vote in the Banking Committee.

I would like to point out another bit of irony right now. Many of my colleagues who recently complained about the process regarding consideration of this bill were some of the same people who took every measure to block all consideration of GSE reform. Actions have consequences, and in this particular instance, they were almost immediate. As soon as it was apparent that GSE reform was dead, Fannie Mae and Freddie Mac took steps to dramatically increase their risk.

The Government Accountability Office, GAO, detailed this in a September 2009 report. The GAO discovered that in 2004 and 2005, the enterprises:

. . . embarked on aggressive strategies to purchase

mortgages and mortgage assets with questionable underwriting

standards. For example, they purchased a large volume of what

are known as Alt-A mortgages, which typically did not have

documentation of borrowers' incomes and had higher loan-to-

value ratios or debt-to-income ratios.

Furthermore, purchases of private-label MBS increased

rapidly as a percentage of retained mortgage portfolios from

2003 to 2006. By the end of 2007, the enterprises

collectively held more than $313 billion in private-label

mortgage-backed securities, of which $94 billion was held by

Fannie Mae and $218.9 billion held by Freddie Mac.

Recently, Daniel Mudd, Fannie Mae's former chief operating officer and chief executive officer, testified:

While the market was changing, Fannie Mae struggled to meet

aggressively increasing HUD goals. The goals were extremely

challenging, increased significantly every year, and

permitted no leeway to account for the challenging lending

environment. Certain mortgages that may not have met our

traditional standards could not be ignored.

While Mr. Mudd may be correct that these mortgages aided their ability to meet their HUD goals, it also should be

noted that the GAO in this same report did not see these purchases as a benefit to their mission, stating:

The rapid increase in the enterprises' mortgage portfolios

and the associated interest-rate risk did not result in a

corresponding benefit to the achievement of their housing

mission.

Ultimately, this increased risk played a significant role in the demise of Fannie Mae and Freddie Mac.

I would like to read one final section of that 2009 GAO report here this afternoon.

According to the Federal Housing Finance Administration,

while these questionable mortgage assets accounted for less

than 20 percent of the enterprises' total assets, they

represented a disproportionate share of credit-related losses

in 2007 and 2008.

For example, by the end of 2008, Fannie Mae held

approximately $295 billion in Alt-A loans, which accounted

for about 10 percent of the total single-family mortgage book

of business. Similarly, Alt-A mortgages accounted for nearly

half of Fannie Mae's $27.1 billion in credit losses of its

single-family guarantee book of business in 2008.

At a June 2009 congressional hearing, former OFHEO Director

James Lockhart said that 60 percent of the triple-A rated

private label MBS purchased by the enterprises had since been

downgraded to below investment grade. He also stated that

investor concerns about the extent of the enterprises'

holdings of such assets and the potential associated losses

compromised their capacity to raise needed capital and issue

debt at acceptable rates.

Madam President, we all know what happened once they were unable to raise capital, but let's also remember the consequences that followed our failure to properly regulate Fannie Mae and Freddie Mac.

Charles Duhigg of the New York Times, part of a group of journalists who produced ``The Reckoning,'' a series that explored the roots of the financial crisis, wrote in 2008 that:

The ripple effect of Fannie's plunge into riskier lending

was profound. Fannie's stamp of approval made shunned

borrowers and complex loans more acceptable to other lenders,

particularly small and less sophisticated banks.

James Lockhart supported this conclusion in his testimony before the Financial Crisis Inquiry Commission on April 9 of this year when he observed that the GSEs:

. . . indirectly encouraged lower standards by purchasing

private label securities. They also encouraged lower

standards by not aggressively pursuing the obligations to

repurchase mortgages if they did not comply with the

enterprises' underwriting requirements.

Madam President, during the debate on this bill before us, we have heard numerous times that we need to have a tighter grip on Wall Street to prevent those large Wall Street firms from harming small businesses on Main Street.

If only my Democratic colleagues had been less concerned with Wall Street's reaction in 2004 and 2005, perhaps we could have protected not only those less sophisticated smaller banks on Main Street but also the millions of consumers caught up in the resulting inflated housing market and the millions of taxpayers who have had to foot the bill for the resulting debacle. Instead, the stalling of this legislation by Democrats at that time ended any attempts of meaningful GSE reform until mid-2008, when Fannie Mae and Freddie Mac were already in serious trouble.

The simple truth is that we didn't act when we could have effected real change. Republicans were ready to enact real reform and-- unfortunately for the taxpayer--Democrats were not. Let's not make the same mistake again here today.

The McCain-Shelby-Gregg GSE amendment takes several important steps to reform the GSEs. It provides transparency to the conservatorships of the GSEs by establishing much needed investigative oversight. It also requires Fannie Mae and Freddie Mac to be included in the Federal budget as long as they are in conservatorship or receivership status. It reestablishes taxpayer protections that were abolished by the Obama administration last Christmas Eve, and it requires that Congress be involved in any decision to spend additional resources to stabilize the housing markets. Finally, it establishes a definite end to the ongoing conservatorships of Fannie Mae and Freddie Mac and paves a responsible path forward by refocusing their efforts, installing proper safeguards, and untangling the U.S. taxpayer from this mess.

I urge my Democratic colleagues to ignore Wall Street and the special interests lobbying against this amendment. Join the Republicans in doing something good for the American taxpayer--support the McCain- Shelby-Gregg amendment.

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

Mr. President, how much time is remaining?

Mr. President, earlier today in the Senate I spoke about the past actions or, rather, inactions of this body that led us to the current situation with Fannie Mae and Freddie Mac. I now will take just a few minutes to discuss the current status of these institutions as Senator McCain has mentioned. I will also explain the specifics of the McCain-Shelby-Gregg amendment and why I believe we must adopt it.

Since September of 2008, we have had to spend more than $150 billion to bail out these GSEs. By some estimates, this amount exceeds the total cost of the savings and loan bailouts that occurred in the late 1980s and early 1990s. Let me repeat that. Bailing out the GSEs has now cost as much or more than the entire savings and loan crisis, and it is continuing.

Having spent such considerable amounts of taxpayer dollars, one would think that the GSEs would be topic No. 1 as we consider financial reform. Unfortunately, that is not the case. As recently reported by Gretchen Morgenson, a Pulitzer Prize writer of the New York Times:

Freddie [has] warned that its credit losses were likely to

continue rising throughout 2010.

Even more troubling, while the GSEs have considerable legacy problems associated with the older loans in their portfolios, they are being used by the Obama Administration to take on additional risks.

On Christmas Day of last year, the Obama administration announced it would relax important taxpayer protections at GSEs, and it would prop them up with unlimited taxpayer funding. That is exactly what they are doing today.

The administration took this step so it would have the flexibility to continue its efforts to support the housing market. Some now are questioning those efforts. In the New York Times piece I mentioned, Ms. Morgenson quotes Dean Baker, codirector of the Center for Economic and Policy Research, who noted:

I do not understand why people are not talking about it

[referring to Freddie's losses] . . . it seems to me the most

fundamental question is, have they on an ongoing basis been

paying too much for loans ever since they went into

conservatorship?

This begs the question of why the GSEs would overpay at this point. What is to be gained? Ms. Morgenson posits a rather compelling theory:

Mr. Baker's concern that Freddie may be racking up losses

by overpaying for mortgages derives from his suspicion that

the government might be encouraging it to do so as a way to

bolster the operations of mortgage lenders.

I hope not. In the past, those huge piles of money that have consistently been spent found their way into the pockets of Democratic operatives such as Frank Raines, Jim Johnson, Jamie Gorelick, Tim Howard, and President Obama's Chief of Staff, Rahm Emanuel. Now similar piles are floating around, not necessarily to Democrats but certainly on behalf of their pet initiatives.

The only constant in either scenario has been the taxpayer has been stuck with footing the bill. I believe this afternoon this must end. It is finally time to protect the taxpayer. The McCain-Shelby-Gregg amendment will do that.

I see my colleagues here. Let me say to my friend from Arizona, what I am going to do is call up an amendment that will be a side-by-side arrangement. I will not ask for any time on this, and I appreciate him getting back so we can get a time certain.

I call up amendment No. 3938.

I ask unanimous consent to dispense with the reading of the amendment.

I realize people want to be heard, but I again urge my colleagues, if we can--every amendment has great value. There are about 60 amendments. At some point we have to draw the line, so I urge people to use as little time as necessary--all the time they think they need, but if we can get to a point where we can vote up or down on these two amendments, I would appreciate it very much.

Mr. President, I can't do the math that fast. I don't know what that amounted to, but if we add 15 minutes for myself--why don't I ask for 20 and then I will yield back. I will take maybe 10. I don't have any requests for speakers at this time, but I may want to leave space in case others may want to be heard. If we could calculate what the time is, find out about Senator Shelby, and then lock down the time. I don't need any additional time for a side-by-side. I will use 15 minutes. As soon as we get a number on that, we will let our colleagues know.

I thank my colleague from Arizona.

Mr. President, let me speak for 5 minutes. I ask the Chair to inform me when I have done so.

First, let me notify my colleagues, we don't have a time agreement yet, but I hope we will shortly on the McCain amendment and the amendment I will offer as a side-by-side on this issue.

I ask unanimous consent to have printed in the Record letters from the National Association of Home Builders and the National Association of REALTORS, both of which oppose the McCain amendment.

I say this with all due respect, but the McCain amendment says that in 24 months we get rid of Fannie and Freddie. I don't call that reform. They are just getting rid of something. What are the implications of just getting rid of Fannie and Freddie? The fact is, Fannie Mae and Freddie Mac, at this juncture, account for 96.5 percent of all funding for all mortgages today. The amendment could undermine the supply without establishing any alternative, and there is no alternative. It just says in 24 months you get rid of Fannie and Freddie. That is a wonderful conclusion, except for the fact that what you get for that--and I don't make up these numbers--is higher interest rates on mortgages, declining values in properties, the possibility of eliminating the 30-year fixed rate mortgage, which only exists because, frankly, we have had the Fannie Mae and Freddie Mac mortgage program.

This program needs to be fixed. There is no question about it. We need an alternative housing financing system. That is without question. But this amendment doesn't offer any. It just says get rid of the one we have.

As the letter from the National Association of REALTORS reads:

[It] places Fannie Mae and Freddie Mac on a fast track to

dissolution. REALTORS believe that reform of these

institutions, that have played a pivotal role in the

evolution of the U.S. housing market, is necessary; however,

now is not the time for drastic action. Especially,

considering the current role in stabilizing the housing

market. [The McCain] amendment does not offer a replacement

to fill the enormous gap that the shuttered GSEs will leave.

That is what we are being asked to do. In the letter from the National Association of Home Builders, they write:

Fannie Mae and Freddie Mac have been, and remain, critical

components of the U.S. housing finance system. However, we

remain concerned about how to get from the current structure

to a future arrangement without undermining ongoing financial

rescue efforts and disrupting the operation of the overall

housing financing system. Any changes should be undertaken

with extreme care and with sufficient time to ensure that

U.S. home buyers and renters are not placed in harm's way,

and that the mortgage funding and delivery system operate

efficiently and effectively as a new system is put in place.

We have to do this carefully. It was the housing problems that got us into this mess. It was not Fannie and Freddie. It was this notion of a deregulated environment that occurred. All the problems emerged in the unregulated sector--unregulated brokers, unregulated mortgage companies. They were luring people into mortgages they could not afford, with no documentation, no background checks whatsoever. That is the genesis of this whole issue. Read a new book, ``The Big Short,'' if you want a good read about the genesis of this problem. I should not be in the business of promoting books, but that book will lay out what happened. Fannie and Freddie contributed to the problem further out, but the problem began in a totally unregulated environment, an unregulated environment that was promoted by the Chairman of the Federal Reserve and his advocates and supporters over the years. That is the origin of the mess that got us into this. Today there is no backup. If 96.5 percent of mortgages are backed by these two institutions right now, what replaces it? There isn't any with this amendment. We are left in a free fall. Who gets hurt? Average Americans. Clearly, we have to step up. Our amendment that we will offer as a substitute demands within 6 months a plan be laid out. There are a lot of different ideas on how to do it. We have had a lot of hearings and discussions on what ought to replace the present housing financing system. But I don't know of anyone who has come to one single conclusion on what the best alternative is. Some have advocated a public utility concept. That has very attractive features to it and is one I would be inclined to be supportive of. There are other ideas on how to do this, but to just eliminate it altogether, without an alternative, at a time when we are just beginning to get back on our feet, housing values are beginning to creep up, housing sales are beginning to move forward?

Again, if we leave this sector of the economy with the kind of disruption created by this amendment, then we could fall right back into a recession. We have lost 8.5 million jobs, 7 million homes have been lost, 4 million homes today are underwater in the United States, and 250,000 have been seized in the first 3 months of this year. If we want to contribute to that, if that is what our goal is in this bill, to decide on a whim and offering an amendment just to strike these two entities that exist with all their problems, that this is the way to deal with the housing problem, it would be a drastic mistake to make, having an amendment such as this be adopted. That is the reason I feel strongly about it. That does not, in any way, take a backseat to the notion we have to come up with an alternative housing financing system. That is absolutely certain. This amendment does not do that. It just gets rid of the present one without replacing it with anything. That is not the way to engage in the kind of reform that is needed.

I think my 5 minutes have expired.

Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Madam President, I ask unanimous consent that the only debate remaining on the pending Dodd and McCain amendments be 20 minutes, with 10 minutes accorded to each amendment; that upon the use or yielding back of time, the Senate proceed to vote in relation to the Dodd amendment No. 3938, to be followed by a vote in relation to the McCain amendment No. 3839, with no amendment in order to either amendment prior to the vote; further, that upon disposition of the amendments described above and as if in executive session, the Senate proceed to executive session and proceed to vote on confirmation of the following nominations in the order listed: Executive Calendar No. 704 and 729; that upon confirmation, the motions to reconsider be considered made and laid upon the table, any statements relating to the nominees be printed in the Record, the President be immediately notified of the Senate's action, and the Senate then resume legislative session; that after the first vote in this sequence, the remaining votes be limited to 10 minutes each.

Well, Madam President, let me now proceed with my time. I know my colleague from Arizona will come over to be heard.

Let me emphasize again to my colleagues that the McCain amendment is opposed by the National Association of Realtors, the homebuilders, and the credit unions for the simple reason that the amendment doesn't do anything except end Fannie Mae and Freddie Mac. That is hardly reform. It replaces it with nothing, so we end up in a free fall in this country when it comes to providing affordable mortgages for middle- income families.

Granted, Fannie Mae and Freddie Mac need to be reformed, and the amendment we will vote on first off--that I will be proposing--in fact requires that the administration, by January, submit a specific plan that would call for how to reform Fannie Mae and Freddie Mac and what to replace it with in a housing financing system. Not to have a housing financing system, just to leave us without one altogether, as we would achieve with the McCain amendment, just eliminating Fannie Mae and Freddie Mac with no replacement within the year, is hardly what we need to do at this time.

We have been through a lot. This problem began in the housing market, in an unregulated segment of our economy. For years, the previous administration and others advocated a totally unregulated market. Because of those attitudes, we ended up where we did--with brokers and mortgage companies that were providing mortgages to people without any documentation, without any underwriting standards whatsoever, and we ended up, of course, with 7 million homes lost, 4 million underwater today, and 250,000 seized just in the last number of months, since the outset of this year.

The McCain amendment would actually leave us in a very fragile situation, and that is the point the homebuilders, the realtors, and the credit unions are making in their strong opposition to this amendment.

Our amendment lays out a timeframe in which the administration would have to submit a specific set of plans so we could then, in the next Congress, move forward.

As my colleague from New Hampshire has pointed out, the issue of replacing and coming up with an alternative housing finance system is very complex. There are a lot of different ideas out there about which plan ought to replace the one we have working today. Obviously that is something the Congress will have to consider.

I mentioned earlier Fannie Mae, Freddie Mac, and the FHA together account for 96.5 percent of the funding for mortgages today. The McCain amendment would undermine this supply without establishing a reasonable alternative. It is irresponsible public policy at a very uncertain time. As Senator Gregg said earlier, on the debate in the Wall Street reform bill the GSE issue is ``too complex to do in this bill.''

The McCain amendment would require the Federal Housing Finance Agency to either end the conservatorship of Fannie and Freddie or disband them, put them into receivership within 2 years. That is all. The amendment poses no alternative to Fannie Mae and Freddie Mac. It would totally privatize the mortgage market other than FHA.

We have had some experience with how the housing market behaves when it is completely privatized. It is called subprime and exotic mortgage markets. As we know, it was this unregulated market, fanned by Wall Street, that pushed out those irresponsible mortgages that they knew people could not afford which led to our current problems. With a still fragile housing market in dangerous times, the McCain amendment would push us back into this downward spiral.

The amendment would do the following. It results in an increase in mortgage rates for home buyers and homeowners. Try to explain that as you go back to your States, if this amendment were adopted. It reduces the availability of mortgage credit in communities across our country, including communities with relatively low-cost housing. This would result in reductions in existing housing values at a time when the housing market is just starting to recover some value.

Further, this amendment would reduce the availability of mortgage credit to first-time home buyers, to low- and moderate-income families seeking to buy or refinance a home by eliminating housing goals. It goes on by delaying or to put home ownership out of reach to many families. It raises the minimum downpayment requirements to 10 percent. A minimum 10 percent for families starting out, with better underwriting standards, that kind of criterion excludes a lot of young families starting out who wish to buy their first home. It reduces the availability of mortgage credit for affordable rental housing by eliminating the housing goals, and it undermines the efforts to get loan modifications and affordable refinances to homeowners trying to save their homes.

Last, it results in the potential elimination of a 30-year fixed rate prepayable mortgage.

This last point is something I do not think most Americans are aware of. We are the only country in the world that provides a 30-year fixed rate mortgage for families. That is the source of wealth creation for most Americans. It is not buying stocks on Wall Street or getting involved in fancy credit default swaps and over-the-counter derivatives and all of this casino gambling that goes on. Average Americans accumulate wealth when they can afford to buy a home and hold on to that property, watching equity increase. That equity provides a source of income for retirement years, helps provide for the college education of their kids, and equity in a neighborhood provides stability for that neighborhood and strengthens communities. If you eliminate the 30-year fixed rate mortgage, you have dealt a huge blow to working families in this country. I do not think we want to look like Europe when it comes to home mortgages, and that is how we will end up if the McCain amendment is adopted.

For all of those reasons, as I said, homebuilders, realtors, and credit unions oppose this amendment.

Reform of the GSEs--everyone agrees we need to make that reform. However, the homebuilders say in their letter to Senator McCain:

. . . we remain concerned about how to get from the current

structure to future arrangements without . . . disrupting the

operation of the overall housing finance system. Any changes

should be undertaken with care. . . .

I agree. We should keep in mind that the Congress created a strong new regulatory regime for Fannie Mae and Freddie Mac in 2008. Their regulator is maintaining strong oversight of these enterprises, while they continue to provide crucial assistance to the housing market.

Longer term reform of Fannie and Freddie would require a thoughtful reconsideration of the structure of the whole housing finance system. This will require hearings about exactly what structure we want to put in place to finance housing in this country. This will require hearings with many stakeholders and others involved in the serious discussions to determine what that system ought to be.

To wipe out the present system--I have to tell you a quick story. It may seem unrelated to the subject at hand.

Many years ago, when I was the ripe old age of 22, I was a Peace Corps volunteer in the Dominican Republic and I went to one of the mountain villages near the border of Haiti and I asked the people what they thought their needs were. They said, What do you think we need to do, of this young American. I looked over at the old schoolhouse they had, one room, made of palm wood with a dirt floor. I said I think you need a new school. They said that is a pretty good idea. We agree with you. What should we do first? I said, first tear down the old school.

It was my first project. For the next 2 years they had no school in town. It took that long. We didn't know where to build the school. We didn't know where the property was, we didn't have the materials, so we gathered in people's homes to become the school. In effect, that is what the McCain amendment is going to do.

I made a mistake at age 22. Before deciding to build what you are going to have, don't tear down what you have without knowing what you are going to replace it with. Eventually we got a school built in that town, but they went through a rough 2 years because this young American didn't understand that while the old school wasn't great and it was in desperate need of repair, tearing it down and leaving them with no school left that little community without the ability to have a decent place to house and teach their kids. That analogy applies here because what the McCain amendment does is tear down without building anything in its place.

Again, I will take a back seat to no one. Democrats should have done a better job. Republicans--I listen to my colleague from Alabama talk about the history of Fannie and Freddie. Believe me, I have an alternative history. But we can go back and forth on that endlessly. Let's suffice to say this: We all should have done a better job at this and finger pointing doesn't get us anywhere. We are not in the business of trying to rewrite history today, we are trying to see to how best to ensure the coming generation will never have to go through what this generation has. What we are offering here is a specific idea of how to get us to that new plan of housing finance. You don't get there by eliminating what we have today and putting everything else at risk as a result of what is included in this amendment.

Under our amendment, the Treasury specifically is told not ``may'' but it ``shall'' do following things: Come up and tell us how we are going to wind down and liquidate Fannie and Freddie; the privatization of the two GSEs; the breakup of the GSEs into small companies; and other options that may be available.

This is a tough study. This isn't one to kind of paint this over; it demands a report back, ``shall,'' how specifically we can do this in a time certain. It is not perfect. I wish I had some magical reform to offer everyone today.

We have looked at this for weeks and months and there is a significant debate over what that housing financing system ought to be. I can't tell you with any certainty what is the best idea at this juncture. I know this much, to tear down what we have and replace it with nothing would be the height of irresponsibility. It would put our country's economy into a tailspin, in my view, at the very time we are beginning to come out of our difficulties--290,000 new jobs created in the last month alone. In the last previous months, 121,000 more than we anticipated. Housing starts are picking up, values are picking up again. Why at this very hour would we step back?

For all those reasons, I say respectfully, the McCain amendment I hope will be rejected by our colleagues and our substitute amendment will be supported.

I yield the floor.

All time has expired, I hope.

I think it is safe to say we can yield back our time.

I ask for the yeas and nays on the Dodd amendment.

Mr. President, I call up amendment No. 3839 and ask for its immediate consideration and ask to set aside pending amendments.

Mr. President, I ask unanimous consent that the reading of the amendment be dispensed with.

Mr. President, before we continue, I know the distinguished chairman of the Banking Committee and the manager of the bill want us to move forward. I understand that. As we speak, I am compiling a list of those who want to speak on the amendment on this side. I assure him we will try to get a time agreement completed as soon as possible. I ask my colleagues on this side of the aisle who want to speak on this amendment to call the cloakroom so we can get that done.

Mr. President, I ask unanimous consent that Senators Burr, Hutchison, and Roberts be added as cosponsors of this amendment.

Mr. President, I apologize to my colleagues for giving them false information a couple of days ago. It is not $125.9 billion that we are now pouring into Fannie and Freddie; it is up to $145 billion that is now being poured in--$145 billion. I remind my colleagues again that last Christmas Eve at 7 p.m. was when the Treasury Department decided to lift the cap, which had been at $400 billion. It is now up--$145 billion. Here we are addressing financial regulatory reform and not looking at $5 trillion of toxic assets that have already spent $145 billion off budget. It is off budget. Incredible.

My distinguished friend from Connecticut pointed out yesterday--he says I want a little revisionist history. He says the House financial committee passed bipartisan legislation. It stalled in the committee over here despite the support for it. The Republican-controlled committee then passed a bill and never filed it, never brought it up for a vote here on the floor of the Senate in 2005. That was my friend Senator Dodd's statement yesterday.

The fact is--a little revisionist history--on April 1, 2004, the Senate Banking Committee passed the bill, the Federal Housing Enterprise Regulatory Reform Act. All 12 Republicans voted for it. All Democrats, including the distinguished chairman, voted against it, according to the Record. So neither bill was taken on the floor because, as we know, we don't move forward with legislation if it is blocked by the other side.

Then Senator Dodd went on to say: I became chairman of the Banking Committee in 2007. We arrived at 2008. We had a significant number of hearings. In the summer of 2008, the Banking Committee passed a comprehensive bill--et cetera, et cetera. The Housing and Economic Recovery Act was finally enacted on July 30, 2008. Just 39 days later, Fannie Mae and Freddie Mac were placed into conservatorship.

I remind Senator Dodd that back in 2006, there was a group of us, in response to an inspector general's report, who said we need to fix it and fix it now, and that was blocked by the other side.

Senator Dodd said: If you think the market took a plunge last Thursday, adopt the McCain amendment. It is a reckless amendment.

What is reckless is the status quo. What is reckless is to totally ignore $5 trillion in toxic assets, already $145 billion of the taxpayers' money being spent. It is reckless for us to go to the American people and say we are fixing the problem that caused the financial meltdown and yet we are ignoring Fannie and Freddie. We are ignoring the trillions of dollars of toxic assets. And don't worry, we will address it later on. That is what the distinguished chairman is going to say--we will address this later on. Later on? Later on? When we have this already done? And it is not on budget. Remarkable.

What the amendment says is that the conservatorship has to end in 24 months. We will give them 2 years to figure all this out. It is reckless, in my view, to say we are not addressing these trillions of dollars in toxic assets, the hemorrhaging of $145 billion already of taxpayers' dollars, on which there is no expert who believes we will ever see a return.

Finally, I would like to quote the Wall Street Journal editorial of this morning that says, ``$145 Billion and Counting. Fannie and Freddie lose it all for you.''

The editorial says:

These efforts to support the Obama anti-foreclosure program

resulted in a doubling of loan modifications compared to the

previous--

Let me start from the beginning.

Fannie Mae yesterday announced its 11th consecutive

quarterly loss--$11.5 billion--and asked for another $8.4

billion in taxpayer assistance.

They lost that. They are asking for $8.4 billion. That puts us well over $150 billion.

Fannie Mae is the Cal Ripken of bad real-estate deals,

reliably pouring taxpayer money into the housing market.

Granted, Fannie faces tough competition from its toxic twin,

Freddie Mac, which last week announced its own request of

another $10.6 billion from taxpayers.

Once the checks from the Treasury clear, Fan and Fred will

have consumed a combined $145 billion in taxpayer cash, and

the end is nowhere in sight. Both companies warned of further

losses triggering more government assistance, which is now

unlimited after a 2009 Treasury decision.

The losses are unlimited because the companies are now run

by the government not to make money, by deliberately

subsidizing housing. In yesterday's press release, CEO Mike

Williams didn't even pretend that he's running a profit-

making business. ``In the first quarter, we continued to

serve as a leading source of liquidity to the mortgage

market, and we made solid progress in our ongoing effort to

keep people in their homes,'' he said. These efforts to

support the Obama anti-foreclosure program resulted in a

doubling of loan modifications compared to the previous

quarter.

Ramping up modifications makes perfect sense in the upside-

down world of Fannie Mae. The company also announced that

most of the loans it modified in the first three quarters of

2009 had gone delinquent again within six months.

Does anyone get that? Most of the loans that were modified--at the cost of $100-and-some billion of taxpayers money--have gone under again, have gone delinquent again within 6 months.

The Wall Street Journal goes on:

Talk about an exciting business opportunity. In case anyone

still hasn't gotten the joke, the company also clarified

yesterday that its directors ``are not obligated to consider

the interests of the company'' unless the government tells

them to do so.

The real joke is that the Obama Administration and Senator

Chris Dodd have collaborated on a financial regulatory reform

bill that includes no reform of Fan or Fred. Senators should

rectify this embarrassment as early as today by voting for

John McCain's amendment to end this most costly of all

bailouts.

My question to the distinguished chairman is, even if he doesn't accept any of the statements I made, is it true that there are trillions of dollars in toxic assets and, if so, what are we going to do about it and when? If not on this bill, where?

The cynicism out there amongst the American people is at the highest level

I have ever seen it in the many years I have been privileged to serve. To go to the American people and say we are going to take measures which will prevent another worldwide fiscal meltdown and we are not going to address trillions of dollars in toxic assets we have already poured $145 billion into--they lifted the cap on Christmas Eve at 7 p.m, so they think it is going to be in excess of $400 billion over time, and nothing in this piece of legislation, nothing in it has anything to do with Fannie Mae or Freddie Mac. Don't be surprised at the cynicism of the American people.

I want to tell the manager, because he was not here, that I am trying to get a list of speakers, get time agreements and give him a time agreement at least on this side as soon as possible.

I yield the floor.

Mr. President, for the information of the manager, I have the following speakers: Senator Coburn for 10 minutes, Senator DeMint for 10 minutes, Senator Thune for 10 minutes. I have not been able to nail down Senator Shelby as to how much time he will take. I would like to sum up for 5 minutes. There will be no more speakers on my side other than those.

Mr. President, before I yield to Senator Thune, in response to Senator Dodd's statement, I am incredulous that we would somehow believe Fannie and Freddie were not among the prime reasons for this financial meltdown.

Peter Wallison, who is a fellow in financial policy studies at the American

Enterprise Institute and is a leading expert on banking and securities regulation, has written extensively about this issue and says:

The roots of the financial crisis date back to 1993, when

Fannie Mae and Freddie Mac--

With the encouragement, by the way, of Members of Congress, including the passage of the Community Reinvestment Act, which basically forced people to give home loan mortgages to people who could never pay them back--he goes on to say--

began stocking up on subprime mortgage assets and other risky

loans while reporting them as prime. The agencies' conflict

of interest between lending to low-income borrowers and

minimizing risk-taking activity may be to blame for their

behavior, however, it is certain that the government's

failure to properly regulate the enterprises has created one

of the worst policy disasters in history.

On Christmas Eve, when most Americans' minds were on other

things, the Treasury Department announced it was removing the

$400 billion cap from what the administration believes will

be necessary to keep Fannie Mae and Freddie Mac solvent. This

action confirms that the decade-long congressional failure to

more closely regulate these two government-sponsored

enterprises (GSEs) will rank for U.S. taxpayers as one of the

worst policy disasters in our history.

That is the view of most economists. How in the world someone as knowledgeable as the distinguished chairman of the committee does not recognize this is one of the prime reasons for the failure, this is one of the prime reasons why 48 percent of the homes in Arizona are underwater, where people are throwing keys in the middle of the living room floor because they cannot afford to make the payments.

The enablers were Fannie Mae and Freddie Mac--the enablers of all this. Time after time, this Congress--this Congress--put pressure on them to increase their home loan mortgages to people who could never afford to pay their mortgages. We know that is the cause of it, and how the Senator from Connecticut can somehow allege that Fannie and Freddie were not--as Mr. Wallison says, the ``action confirms that the decade- long congressional failure to more closely regulate these two government-sponsored enterprises will rank for U.S. taxpayers as one of the worst policy disasters in our history.''

This morning, Mr. Wallison is quoted as saying:

Right now we have a consensus that something needs to be

done. The sensible thing to do is to put Congress in a

position where they have to act within a certain period of

time.

That is what this amendment does. They have to act in a certain period of time. The Senator wants to know who should be making home loans? Community banks. Community banks should be making home loans to people. They should be able to extend lines of credit to small businesses. But the main thing is, it should not be given to a government-sponsored enterprise to keep it in business, where the hundreds of billions of taxpayer dollars being spent is unlimited.

I yield the floor. Senator Thune, I believe, has 10 minutes.

Mr. President, I have been around this body for a long time. I have seen the side-by-sides. This is one of the classics that we have seen time after time. If you don't like a tough amendment, then have one that requires a study. Let's study the problem. And the purpose of this amendment as stated, and I quote from the amendment:

To require the Secretary of the Treasury to conduct a study

on ending the conservatorship of Fannie Mae and Freddie Mac

and reforming the housing finance system.

Reforming the housing finance system--I thought reforming the housing finance system was part of the deal here. I had no idea we were not going to reform the housing finance system when we advertised this legislation to the American people as to assure them that there would never be another financial meltdown which was caused by the housing finance system.

What does the side-by-side amendment do? It will require the Secretary of Treasury to conduct a study. Do you mean to tell me the Secretary of Treasury, after the greatest financial meltdown in history since the Great Depression, has to conduct a study? He has to conduct a study to figure out why we have just spent $145 billion, lifted the $400 billion cap at 7 p.m. on Christmas Eve? The system cries out for reform now. As is stated by literally every expert in America, it was the housing meltdown, abetted by the enablers Fannie and Freddie, that caused the financial meltdown. So we are doing nothing about it except asking the Secretary of Treasury to conduct a study. Remarkable. Remarkable.

Again I want to quote from the Wall Street Journal that says it well enough. It says:

This action confirms the decade-long congressional failure

to more closely regulate these two government-sponsored

enterprises will rank for U.S. taxpayers as one of the worst

policy disasters in our history.

One of the worst policy disasters in our history, and we are doing nothing about it except conduct a study. That ought to do it.

I am not calling for the abolition of Fannie and Freddie. I am calling for them to stop being in the government trough. I am saying that Fannie and Freddie ought to be doing their job in competition with everybody else who finances home loan mortgages in America. The history of these organizations is replete with enabling by the Congress of the United States--including, by the way, incredible compensation for the so-called people who were supervising these organizations as they went into the tank--one of them $93 million for a year or two of supervising going farther and farther into toxic assets.

All I can say is if we pass this legislation without this amendment, do not look the American people in the eye and say we have reformed the financial system in America. Do not look the American people in the eye and say we will never again have a financial collapse in this country. Do not say we are going to turn off the spigot of Federal tax dollars-- already $145 billion.

Why did the Treasury lift the cap of $400 billion that we were going to spend to help with these toxic assets of Fannie and Freddie if they didn't think it was going to be more than $400 billion?

So what are we doing in response? Sitting by and watching hundreds of billions of dollars of the taxpayers' money being used to bail out these two government-sponsored enterprises to the great cost of the American taxpayer. Again I say to my colleagues: Don't wonder why the American people are fed up. Don't wonder why the American people are in virtual peaceful revolt, when we continue to pour good money after bad, to the tune of hundreds of billions of dollars, without reforming the institutions that caused it. We are not fulfilling our responsibilities to the American taxpayers.

I am asking my colleagues, don't vote for another study. If you are going to vote against my amendment, fine, but let's not continue this charade and vote for another study.

I yield to the Senator from Alabama what time remains.

I ask for the yeas and nays.

Madam President, I thank my colleague from Arizona for yielding me time.

I would say Fannie Mae and Freddie Mac is a pox on all of us. But shame on us if we do not try to do something in this legislation to address this issue. What the McCain-Shelby-Gregg amendment does is responsible. It does allow for a wind-down of this conservatorship. But, as the Senator from Arizona has pointed out, it goes squarely at what I think most economists argue was a huge contributor to the meltdown we experienced a couple years ago: the runaway lending and irresponsible lending practices that were involved with the plight we now see with Freddie Mac and Fannie Mae, where they have, up until, I think, this last quarter--or taking the last quarter combined, it is about $145 billion now that the taxpayers are on the hook for.

As the Senator from Arizona pointed out, last Christmas Eve the administration lifted the cap. There was a $400 billion cap on the amount of taxpayer assistance that could be provided to these two institutions. But now that cap has been lifted. Imagine the scale and dimension of what we are talking about, when we already have $145 billion of taxpayer exposure. We assume it could be as much as $400 billion. But just in case, the administration lifts the cap because it could go well beyond that, which suggests, if history is any indication, it will go well beyond that.

What this does is say we need to exercise some responsibility with regard to the regulation of all the financial institutions in this country. What the Senator from Connecticut, in his bill, does--with the financial services regulation reform bill--is to attempt to get at what contributed, in many respects, to the meltdown we experienced a couple years ago. But it ignores perhaps, as has been pointed out by the Senator from Arizona, one of the biggest contributors to that problem; that is, these two toxic institutions, Freddie Mac and Fannie Mae.

The administration has said they need time to come up with a plan. The side-by-side that is going to be offered by the Democrats is going to be a study. We are going to study this for about 6 months. I think their argument is, it would be dangerous to rush the process. I think the contrary is true. I believe it is dangerous to ignore this problem any longer. We cannot afford to wait so more taxpayer money can be lost, can be wasted in trying to keep these two entities afloat.

As I said before, last week we were informed that Freddie Mac needs an additional $10.6 billion in taxpayer funds due to an $8 billion loss in the first quarter of 2010. Since September of 2008, that brings the taxpayers' invoice for Freddie Mac to $61.3 billion.

Fannie Mae reported a first quarter loss of more than $13 billion, needing $8.4 billion from the government, putting their bill to the American taxpayers at $83.6 billion.

So the grand total of taxpayer loss from these two entities since their takeover in 2008 is a whopping $145 billion.

The losses racked up by Freddie Mac and Fannie Mae exceed--exceed-- the government's losses on AIG, General Motors, and Chrysler. Yet the current legislation in the Senate is completely silent on these two entities. That is outrageous. We cannot continue to funnel unlimited amounts of taxpayer money into Freddie and Fannie and have no plan to end this siphon.

In a time when we are faced with crushing debt and out-of-control deficits, we are willing to turn a blind eye to a $145 billion problem, which is going to only magnify over time. Last Christmas Eve, the administration lifted the cap of $400 billion, which is what initially was put in place that would limit the amount of taxpayer exposure. But what we are now saying is that may not be enough. Yet we do nothing-- nothing--in this legislation to remedy this problem.

Obviously, the administration knew there was more bad news ahead when they decided to lift the cap on government assistance on Christmas Eve of last year. The Obama administration decided that taxpayers could afford unlimited funding for Freddie and Fannie rather than keep a $400 billion cap on assistance in place. It is frightening they believe that $400 billion is not going to be enough--unlimited funding may not be enough. Who knows where this ends.

That is why I think it is important right now that we deal with this issue, and the McCain-Shelby-Gregg amendment does it in a responsible way by winding down and providing a timeline. It sets a 30-month date out there by which this conservatorship has to be wound down.

If you look at what the current exposure is in terms of Freddie and Fannie, they own or guarantee over 30 million home loans, worth about $5.5 trillion. The CBO estimates that Freddie and Fannie could cost the taxpayers as much as $380 billion through 2020. As I said before, my assumption is that because we lifted--``we,'' the administration lifted--the cap on the $400 billion of exposure, the assumption is, it is going to go much higher than that. So I think we have to ask ourselves this fundamental question: Is this the direction in which we want to continue heading or is it time to change course?

The time to change course is now while we are debating a bill that is designed to address the very problems we encountered a couple years ago. Freddie and Fannie, as the Senator from Arizona said, were at the very heart, the very core of that issue.

According to a recent Washington Post article, with the government's

conservatorship of Freddie and Fannie and the increase in FHA and VA loans, the government backed nearly 97 percent of home loans in the first quarter of 2010. Madam President, 97 percent of loans are backed by the U.S. Government. Is this where we want to end up? Is this where we want to head? Is this the best course for our housing market? Is this the role the Federal Government should be taking when it comes to housing in this country?

I firmly believe it is time we change course. I think there is great value--we all agree there is great value--in home ownership and helping families achieve the American dream of owning their own homes. But we have to bring personal responsibility back into the conversation. We need to go back to a time when families saved up money to make a downpayment on a house. They went to their banks. They provided the necessary documentation to prove they could pay back their loans, and they bought a house that was within their budgets. Buying and owning a home should be a goal people work to achieve, not a government mandate funded by the taxpayers. That essentially is what we have created.

So I believe it is about time to take responsibility for our actions. My constituents in my State who bought houses they could afford and paid their bills on time want to see Congress start taking some responsibility. I believe the McCain-Shelby-Gregg amendment does just that. It shows our commitment to getting our fiscal house in order in Washington, DC.

As I said, it is a sound plan for winding down the government backstop to Freddie Mac and Fannie Mae. It mandates that conservatorship will end in 30 months or less. Freddie Mac and Fannie Mae will have to reduce their portfolios by 10 percent each year, and if they are not viable enough to exist after the 30 months they will be liquidated. If they are a viable company after the 30 months, they would only enjoy their Federal GSE status for another 3 years.

The amendment repeals the affordable housing goals that persuaded the two entities to enter into the subprime loan business in the first place, which I believe was the slippery slope that got us into all the problems, all the troubles we are facing today.

It creates new underwriting requirements on loans purchased by Freddie and Fannie. Freddie and Fannie will have to reduce their mortgage assets by more than 50 percent within 2 years and increase their capital reserves. It repeals the temporary increase in the conforming loan limit, returning it to $417,000. The two would have to pay State and local taxes, register with the SEC, and pay a fee to the government to repay their debts to the taxpayer.

These are all responsible reforms. Contrary to the assertions that have been made by the other side, this amendment is the correct way to proceed in dealing with these two giant institutions that have lost their way and are costing the taxpayers literally billions and billions and billions of dollars every quarter that passes that we do not take steps to fix this problem.

The amendment would reinstate the $400 billion cap that the administration lifted in December so the taxpayers know for certain they are not going to be on the hook for unlimited financial support.

The amendment establishes a new special inspector general at the GAO to investigate and report to Congress on these two entities. Freddie and Fannie would be included in the Federal budget until their conservatorship has ended, which is the fiscally responsible thing to do when we all know they do, in fact, have an impact on our budget and on our debt.

As I said, I have heard the arguments on the other side of the aisle, and I think they are ignoring the clear will of the American people. The American people get this. They know why we are where we are. They are sick and tired of subsidizing the mistakes of Freddie Mac and Fannie Mae. We need to put an end to the taxpayer bailout.

I think it is important to the credibility of our economy and our credibility with the American taxpayers--but it is important to the credibility of the markets and to our economy--that they understand we are serious about solving this problem. That is why the McCain-Shelby- Gregg amendment is the correct way to proceed. We are going to have a vote on that very soon, and I hope we will not leave this subject, that we will not dispose of this financial services regulation reform bill without addressing this very important topic.

To suggest for a minute, as the other side has, that somehow we can do a study, we can put this off for 6 months--and who knows. By the time they complete the study, they will have to think about the results of that study and formulate a plan, and that will take another 6 months or a year. Every single month, every single quarter that goes by, we continue to hemorrhage more and more money at the cost of billions and billions of dollars to the American taxpayers. They have had enough. We should say we have had enough and we are going to bring some discipline. This amendment does that, and I hope my colleagues will support it.

I yield the remainder of my time.

Madam President, I suggest the absence of a quorum.

Mr. President, I wish to rise also and first I want to associate myself with the words from the Senator from Georgia. He is absolutely correct in his history of how Freddie and Fannie got started and what their purpose was and the fact that they are a great idea that went wrong, unfortunately--or went ``awry'' would be a better term, not wrong. The concept remains a good idea.

I rise to support Senator McCain's proposal because what he is suggesting is a way out of a very deep and dark hole of debt for our Nation and our American taxpayers, which is being generated by the legacy and the present activities of Freddie Mac and Fannie Mae.

Part of this amendment in which I played a role primarily is the issue of bringing on-budget and, therefore, into the light of day just how much the American taxpayers owe as a result of the situation that has occurred in those two businesses. It is estimated that the American taxpayer will end up picking up somewhere around $400 to $500 billion in costs as a result of the activities of Freddie and Fannie.

As far as the American taxpayer knows, this will be something that comes out of the sky. I mean, nobody is aware of it. Nobody is thinking about it. Nobody is talking about it. But these are actual debts that are going to get put on our books and which will affect our credit worthiness as a nation and which all Americans will have to pay back.

Why is this going to happen? It is going to happen because during the halcyon days of taking on debt, or taking on obligations in the area of mortgages which were not properly underwritten--and there will be a later amendment by Senator Corker which I will support in the area of underwriting--but which were not properly underwritten and which were securitized and basically insured, for all intents and purposes, by Freddie and Fannie, we ended up with a situation where they own a lot of paper which does not have the value it is supposed to have and which is not being paid back at the rate at which it was supposed to be paid back.

Unfortunately, there was a tacit understanding that grew up in the markets that the American taxpayer was going to stand behind that paper. It was never explicit, but it became tacit, and people expected that. Then when the actual event occurred, as these defaults started to accelerate, it became real and the American taxpayer is now having to stand behind all of this debt.

It is certainly going to come as a shock to most Americans that they owe approximately $\1/2\ trillion--$\1/2\ trillion--because of very bad decisions that were made by a group of people who were underwriting and basically securitizing these loans.

Why did that happen? Well, there will be a lot of recrimination on this subject. But the basic reason was that the Congress decided that Americans should own houses whether they could afford the houses or whether the houses sustained the value of their loans, Americans should be able to go out and buy houses. So a lot of houses were sold which did not have the underlying value necessary to support the loans which were made on them, and which the person who bought the house and took out the mortgage did not have the income over the extended period of time of that loan to pay it back. Everybody knew it at the time the

house was bought. Everybody knew it at the time the mortgage was made. But they figured: Well, appreciation will always occur in real estate prices. So that will not bother us with the value of the house. Well, maybe this person who got the loan for the house, maybe their income will increase, or when the reset day occurs on that mortgage they will be able to take care of it in some way.

So nobody faced up to the problem at the time, and literally millions, millions of homes were purchased under that basic scenario. That is what caused the implosion, basically, of our financial markets back in late 2008, and Freddie and Fannie are a large part of that implosion. But a lot of the initiative for that came from the Congress, basically asserting that people should be able to get those types of loans, and pushing Freddie and Fannie from using what had been very standard and traditional underwriting standards in the 1990s into much more aggressive standards as they moved into the early 2000 period.

As a result, we had this proliferation of loans which simply did not have the underlying value and did not have the capacity to be repaid. They were all securitized by Freddie and Fannie. So now the American taxpayer ends up with this huge bill.

I think we have an obligation as a Congress to at least be honest with the American taxpayer on this and tell them this is how big the bill is. And it is huge. It is huge.

So this bill is now hidden in the drawer under the Federal accounting system where we do not even acknowledge that it exists under the Federal budget, even though we know we owe it, even though we know it is going to be put on the books of the Federal Government, even though we know the American taxpayer is going to have to end up picking this up in the long run. We do not even acknowledge it. It is stuck in some drawer somewhere in Washington.

Well, that should not happen any longer. We just had an amendment about transparency with the Federal Reserve. Everybody voted for it. Everybody voted for the transparency amendment on the Federal Reserve. This is the transparency amendment on Freddie and Fannie. This amendment will tell the American taxpayer just how much they really do owe. It will bring on-budget the issue of the debts of these two corporations, which are now the obligations of the Federal Government and therefore the American taxpayer. Absolutely last to be done.

I thank the Senator from Arizona for including in his amendment this language which brings this on-budget the way it should be. It opens the light of day so that the American taxpayer can understand just how much risk has been piled on their backs, how much debt has been piled on their backs as a result of the irresponsible activity, which in large part was initiated by this Congress over the years, forcing out loans and pushing a public policy that these loans should be made.

Secondly, I congratulate the Senator from Arizona for bringing forward an idea, a proposal for how we unwind this situation and how we get out of this situation by putting us on a path, a path toward basically decoupling Freddie and Fannie from the American taxpayer, having those two organizations no longer be dependent on the American taxpayer and having the American taxpayer no longer having to pick up the debts of mistakes made by those two corporations, even when those mistakes were caused, to some significant degree, by the Congress taking actions which were inappropriate--or which were bad policy, not necessarily inappropriate, but definitely bad policy.

So I congratulate the Senator from Arizona. I think this is a good amendment. As has been said, how can we take up financial reform if we do not take up the single biggest entity, the single biggest two entities, when combined the single biggest entity, that affects the financial markets relative to real estate lending in this country, which is what caused the downturn and the crisis at the end of 2008.

We cannot do it. We cannot claim we have done financial reform if we do not take on and address this issue. I understand that the administration said: Well, we will do it next year. Well, we do not have time. It needs to be done now. We need to address this now. It is a critical issue, and it is at the essence of whether we can get our house right and our ducks in the correct order relative to financial reform.

If we do not straighten out Freddie and Fannie and its relationship to the Federal Government, and specifically its relationship to the American taxpayer, we really have not done anything to solve the long- term problems of how we get our fiscal house in order because that issue of how to make real estate loans in this country is at the essence of how we correct the financial structure of this country.

This amendment, coupled with the amendment that is coming from Senator Corker on the issue of underwriting, are the two key amendments to this bill which address the two elements which are not addressed but which have to be addressed if we are going to have effective, comprehensive, lasting, and meaningful reform.

I yield the floor.