Mr. Chairman, at this time, I am pleased to yield 1 minute to the gentlewoman from Minnesota (Mrs. Bachmann). Mr. Chairman, I yield myself 3 minutes. First, I'd like to respond to the gentleman from Vermont who said that Citigroup endorsed…
Mr. Chairman, at this time, I am pleased to yield 1 minute to the gentlewoman from Minnesota (Mrs. Bachmann).
Mr. Chairman, I yield myself 3 minutes.
First, I'd like to respond to the gentleman from Vermont who said that Citigroup endorsed this legislation. Well, I must tell you the American Banking Association doesn't support this, nor do the community bankers, the bankers who still have their heads above water all across my congressional district and many other districts across the country that are making mortgage loans day in and day out. They don't support this legislation. But a bank that is receiving already tens of billions of dollars in government assistance supports it. That should convince us that this legislation leads us in the right direction?
Then to the gentleman from Georgia, I would point out that the Congress, a number of years ago, created a special Chapter 12 bankruptcy proceeding for farmers, and that was a temporary change in the law as well, as this one is. The gentleman is correct; it only applies to existing mortgages. But that law, created many, many years ago, still exists because it's been extended and extended, and we are at risk of having the same thing happen here, particularly when the mindset is that we should turn to the advice of banks that are failing to tell us a good way to handle a problem that banks that are succeeding say it is a bad, bad practice.
And I also want to speak against this amendment. Far from making bankruptcy a last resort, this gives homeowners two bites at the apple. Even if they obtain the Obama compliant loan modification from their lenders, i.e., workouts that meet the terms of President Obama's mortgage program, they can still go into bankruptcy. Once there, they can shop for a better deal from the bankruptcy court. Lenders, meanwhile, have to honor the already-cut voluntary deals all the way through bankruptcy.
At the end of the case, the homeowner keeps whichever deal is sweeter. That's not making bankruptcy a last resort. That's guaranteeing abuse of both voluntary modification and bankruptcy. We're going to see a run on the bankruptcy courts if this legislation is adopted.
Meanwhile, what happens to the borrower who rejects an offer meeting President Obama's terms? Nothing. The bankruptcy court can theoretically refuse to confirm a borrower's cramdown plan, but under the terms of the amendment, that will likely happen only when the lender offered a modification without a voluntary cramdown and the borrower has no need for bankruptcy relief anyway.
And what about borrowers who are within 30 days of foreclosure sales? They don't even have to contact their lenders about voluntary modifications. So none of the amendment modifications do not apply.
The new manager's amendment does nothing to change this exception that
swallows the whole bill. As a result, borrowers who may have entered into mortgages that they shouldn't have in the first place, and bankruptcy attorneys can game the system by simply waiting until borrowers are within the 30 days of a foreclosure sale to file for bankruptcy.
I reserve the balance of my time.
Mr. Chairman, I yield myself 30 seconds.
First, I say to the gentlewoman from California that the largest credit union association in the world, Credit Union National Association, a member-owned collection of credit unions around the United States, strongly opposes this legislation. When we talk about the ``little people'' and the organizations that reach out and help people day-to-day with loans, they know the impact that this will have.
And secondly, to the gentleman from North Carolina, the fact of the matter is cramdowns were entirely prohibited going back to the 1898 law. So for more than 100 years, when they liberalized in other areas, they simply continued in this area. It's not true that they have only prohibited cramdowns since 1978.
Mr. Chairman, I yield 2 minutes to the gentleman from Iowa (Mr. King).
Mr. Chairman, at this time I am pleased to yield 1\1/ 2\ minutes to the gentleman from Georgia (Mr. Price).
Mr. Chairman, I yield myself 1 minute.
Some of the other issues raised in this manager's amendment that need to be pointed out are that the amendment provides an alternative to cramdown of principal, but astoundingly the alternative is free money. If the judge does not want to give a cramdown, he can just rewrite the mortgage as a no-interest loan over the full term of a new 30-year deal. Now, just like there's no such thing as a free lunch, there's no such thing as free money for banks or credit unions to lend to the people who come to them.
So while the gentleman--in fact, several have made the point that this only applies to existing mortgages. The fact of the matter is the money to pay for the modifications that are made here has got to come from someplace. And while I remain concerned that all you would have to do in the future would be to advance the enactment date--everything else in the law would be the same--so you could continue this policy and make it permanent, even if you didn't, money from future borrowers is what's going to be used to fund these changes in current mortgages. It's wrong.
Mr. Chairman, I yield myself the remaining time.
Mr. Chairman, the bottom line, in response to the gentleman from Georgia's argument, is that his case is the strongest one for leaving the bankruptcy laws the way they are because the incentives already exist for them to avoid the cost that he described. So somebody who is struggling right now with their mortgage payments, the incentive exists for them to work with the financial institution and for the financial institution to work with them so they don't face the uncertainties that occur in bankruptcy court.
So, the bottom line is that what this is going to do is it's going to pass along to future people who want to buy homes, whether the law is extended in the future or not, the cost that will be borne by credit unions and community banks and others who are making these mortgages today--they have to cover costs that are unanticipated when they made the mortgages--they're going to have to pass them along in the future. To the extent that they can voluntarily work that out with the existing homeowner, that is the best solution. But that occurs right now and that incentive exists right now under the law. To change the law in the manner that's provided for here, even with the changes in this amendment, simply does not work. And it does not give the assurance to those who said that there needs to be a second chance, a second opportunity to negotiate between the lender and the homeowner voluntarily
because, as I pointed out earlier, any clever bankruptcy attorney will advise his client to simply wait until they're within 30 days of foreclosure, then they don't have to engage in that, they can go straight to the bankruptcy court, bypass exactly what he was calling for happening, and go to the court and see what they can accomplish there under this very, very harmful law from the standpoint of the health of currently healthy banking institutions.
So I urge my colleagues to oppose this amendment and to oppose the underlying bill. This is not the way to keep a healthy system by allowing people to continue to borrow and buy homes.
Mr. Chairman, I demand a recorded vote.
I thank the gentleman for yielding me the time, and I am pleased to support his amendment, which addresses a serious problem that's in the underlying bill that is not corrected by the manager's amendment, and that is that the cramdown bill will reduce the incentive for many solvent borrowers to keep making payments on their mortgages.
While there are 3 million borrowers who are 60 days or more delinquent on their mortgages, 52 million borrowers remain current in their payments. The cramdown bill gives struggling, but still solvent, borrowers a powerful incentive to stop paying off their mortgages, trigger foreclosure notices and go into bankruptcy to cramdown their mortgage principal and restructure or eliminate all of their other debts.
We will have an outright catastrophe on our hands if most borrowers get the idea that they can successfully game the bankruptcy system in this way. The gentleman's amendment would correct this problem and make sure that we don't have a run on the bankruptcy courts of great magnitude by creating what is currently in the bill now, an incentive to file bankruptcy if the value of your mortgage is greater than the value of your home.
The Four Worst Things About the Mortgage Cramdown Bill (H.R. 200)
No. 1: Back to the Financial Meltdown--The cramdown bill
seriously threatens to send us through a time warp straight
back to the September financial meltdown. Write-downs of
mortgages in bankruptcy will inexorably force downgrades of
mortgage-backed securities based on those mortgages. The
downgrades will in turn force banks and insurance companies
on the hook for the securities to boost their capital
reserves. (For example, if a AAA-rated security is downgraded
to a BB rating, a bank or insurance company will have to hold
10-times the capital reserves.) The resulting hoarding of
capital could total hundreds of billions of dollars, freeze
lending, kill many already wounded banks, and send us
straight back to the brink we faced in September 2008. This
could precipitate another bank bailout to the tune of
hundreds of billions of dollars, and it will undermine
everything we yet have done to stem the financial crisis.
No. 2: Moral Hazard--The cramdown bill will reduce the
incentive for many solvent borrowers to keep making payments
on their mortgages. While 3 million borrowers are 60 days or
more delinquent on their mortgages, 52 million borrowers
remain current in their payments. The cramdown bill gives
struggling but still solvent borrowers a powerful incentive
to stop paying off their mortgages, trigger foreclosure
notices, and go into bankruptcy to cram down their mortgage
principal and restructure or eliminate all of their other
debts. We will have an outright catastrophe on our hands if
most borrowers get the idea that they can successfully game
the bankruptcy system in this way.
No. 3: Higher Interest Rates and Down Payment
Requirements--Including for the Innocent and the Risky
Borrowers Most in Need--The cramdown bill is not the last
step. It is the key step in the Democratic Congress' walk-up
to its long-sought repeal of the primary residence mortgage
exception from the Bankruptcy Code. Once the primary
residence exception is gone, lenders' greatly increased risk
will surely lead to higher interest rates, higher down
payment requirements, and other, tighter terms of principal
residence mortgages. This will especially hurt already risky,
lower-income borrowers, anyone who needs to refinance out of
a challenging mortgage, and everyone who responsibly waited
on the home-buying sidelines until the housing bubble burst.
In fact, once the first, very big step is taken through the
cramdown bill, lenders would be foolish not to begin pricing
in their likely increased risk right away. So what's the
result of the cramdown bill? Nothing more than swapping the
victims.
No. 4: We Still Have Better Options We Can Try--Backers of
the cramdown bill say we've tried everything else to stem the
foreclosure crisis, and nothing else has worked. That's
nonsense. The most recent voluntary programs are working
better, and top-flight academics have proposed a terrific
solution to get at the mortgages we still haven't been able
to reach--mortgages served by third-party servicers that
don't own the loans. These servicers lack sufficient
incentive to seek loan modifications rather than to
foreclose. What is more, if they do modify loans, they can be
sued by mortgage-backed securities investors. Still on the
table is a proposal to fix this problem by giving third-party
servicers a small, per-loan incentive out of TARP funds, and
cutting off litigation risk by overriding problem contract
clauses and affording a litigation safe-harbor. This proposal
appears to be the best possible solution for the critical
mass of the remaining problem loans. It will cost little more
than $10 billion in TARP funds. Why on earth would we risk
the parade of horribles and hundreds of billions of dollars
of downside risk threatened by the cramdown bill, when we
still haven't tried other, better options.
Mr. Chairman, I rise to claim the time in opposition to the amendment, even though I am not opposed to the amendment.
Mr. Chairman, I yield myself such time as I may consume.
The amendment seeks partially to reinstate a credit counseling requirement for chapter 13 bankruptcy petitioners that H.R. 1106 will strip entirely away. There is no good reason to wipe out the credit counseling requirement for debtors facing foreclosure.
Bankruptcy credit counseling benefits consumers by providing the financial education needed to emerge successfully from bankruptcy. Homeowners facing foreclosure are ideal candidates for credit counseling. This is not always because they can avoid bankruptcy.
It is often so that they can get help to increase their prospects of being successful after bankruptcy. The vast majority of Americans who receive credit counseling believe strongly that it benefits them.
Finally, credit counseling offers one last real opportunity for a homeowner to reach out to a lender and determine whether a loan modification is possible. A majority claims that many borrowers were hoodwinked into obtaining their loans. That's largely why the majority wants homeowners to be able to take their loans into bankruptcy.
But if credit counseling might show homeowners a better option than bankruptcy, why not let them try counseling. The amendment we are considering does not go far enough. It does not fully restore the requirement for counseling that is in current law.
The Rules Committee should have made Mr. Forbes' credit counseling amendment in order. That amendment would fully restore the counseling requirement and ensure that borrowers receive counseling before they file for bankruptcy.
However, because the amendment before us does restore at least a limited requirement for counseling, I support it.
I reserve the balance of my time.
Mr. Chairman, may I ask how much time is remaining on each side?
Mr. Chairman, I yield such time as he may consume to the gentleman from Texas (Mr. Gohmert).
Mr. Chairman, may I ask how much time is remaining?
Mr. Chairman, let me take the 30 seconds to say that while I think this is a good amendment and I support it, it doesn't go as far as it should have. We should have had the opportunity to vote today and debate today the amendment offered by Congressman Forbes from Virginia. But nonetheless, that not being the case, I support this amendment.
But I still strongly oppose this underlying legislation, which is going to cause hardships for future homeowners who are going to wind up paying higher mortgage rates and larger down payments for the problems that exist today. That's wrong. We should not pass that and spread that risk to those people, and we should not jeopardize legitimate credit unions and community banks that have been doing so much to help extend credit in this country.
Mr. Chairman, I demand a recorded vote.