Providing For Further Consideration Of H.R. 1106, Helping Families Save Their Homes Act Of 2009
Mr. Speaker, many of us have read the Peruvian economist book, Hernando de Soto's book, ``The Mystery of Capital: Why Capitalism Succeeds in the West and Fails Everywhere Else.'' It's a best seller in the developing world. The importance…
Mr. Speaker, many of us have read the Peruvian economist book, Hernando de Soto's book, ``The Mystery of Capital: Why Capitalism Succeeds in the West and Fails Everywhere Else.'' It's a best seller in the developing world.
The importance of that book in a lot of the world is it explains to people why it is that interest rates are so low here, why it is that we're so successful in the percentages of mortgages that we're able to grant in the United States. And it is the sanctity of that contract, it is the certainty of that mortgage contract. And the great fear I think many of us have here is that if we start down the road to writing down the principal in that contract, we are going to end up moving in the direction, as de Soto would say, of the difference between the First World and the Third World. We are not going to be able to have interest rates that are around 6 or 7 percent.
Is there a way that Treasury has developed as an alternative to this scheme? Yes, they have. They have developed a way to have mortgage servicers work out these Alt-A loans that we're talking about today, these ARMs that might go to 8\3/4\, and to work that out into 30 years at 6 percent that's affordable for people. And we've had 2.3 million of those workouts by the end of last year.
But now, here we are, instead of doing the voluntary arrangement and putting resources in to do that--which is what we intended to do, I think, as we started this process--we're, instead, listening to the bankruptcy attorneys with an alternative approach. And that approach is to set this up so that it can be gamed in a way that knocks down the amount of the principal. And if we do that, we're right back to where Chief Justice of the Supreme Court John Paul Stevens said we would be in the case of Nobleman v. American Savings Bank. He said, you do this--there's a reason why that mortgage contract is held in the law the way it is. If you manage to reduce that principal, then the consequence is going to be that capital is not going to come in and drive down interest rates.
My concern here is that the difference between what people pay on the market for credit card rates or auto loan rates and interest rates on their home mortgage is a huge sum of money. And in order to empower these bankruptcy judges to go forward and take advantage of this and open this up, then the investors on the other side of the--let me throw one other thought out there besides the impact it's going to have on interest rates.
Think now about what happens with the HOPE NOW Alliance, where people at the table are trying to get that 30-year loan at 6 percent. Are either the borrower or the lender going to stay at that table when they think, oh, no, here's an alternative: we go to bankruptcy court, we write down the amount of that principal? No, my friends. We're headed down a road here that is very, very ill-advised.
If you want to do workouts in terms of lowering the interest rate, that's one thing, and there is a way we can do it. We can put more resources in there that the mortgage servicers can use to do that. But this is the wrong road.