WASHINGTON, DC – April 1, 2008 – Earlier today, U.S. Senator Jack Reed (D-RI), a senior member of the Banking Committee, which oversees federal housing policy, delivered the following remarks on the floor of the U.S. Senate:
Mr. Reed: The senator from Illinois has explained this extremely well.
What it does is give homeowners a chance to get out from underneath a collapsing housing market in the United States.
It has been well tailored. It is responsible, and, I think it is something that we should adopt very quickly in this legislative package that is going forward.
The whole housing crisis is a reflection of a much more deeper economic malaise that is gripping the country. We are seeing skyrocketing prices in terms of energy and foodstuff.
I visited two Italian bakeries in Rhode Island, family-owned companies. They’ve never seen the run up for prices in wheat that they’ve seen in the last several weeks and months.
The final shoe to fall was the fact that we’re losing jobs now. In the last two months we lost jobs. Last month 63,000 jobs were cut from the payroll. That is the largest month by decline in jobs for five years.
The national rate is 4.8, but in my home state, it is 5.8%.
The key to this, though, in my view, to reconcile to try to stop the erosion of economic opportunity in the country is to stabilize the housing market. And that is what the package of proposals that we will vote on this afternoon attempts to do.
We have a situation in this country where incomes have been flat for the last eight years for most Americans. Unless you’re extraordinarily well compensated at the highest level, but if you’re a working man or woman, low income, middle income, even upper middle income, your income has been relatively flat. You have seen accelerating costs, but the last thing that people had in their tool kit, if you will, was the value of their home.
That was what they could draw on in emergencies. They could use it to help children go to college, they could use it if there was some unexpected expense.
With the declining housing values, American families are being squeezed dramatically. Job losses, increases prices, flat incomes, and now declining housing values. In fact, it’s been estimated that today in the United States the value of homes fell below 50% of equity, the ratio of equity to the old value of the home fell below 50% for the first time in a long, long time. And we’re also looking at a situation where there is a record number of foreclosures.
Just this morning, coming in to work, listening to the radio, Montgomery County, a huge acceleration of foreclosures in that suburb in Maryland of Washington, D.C. and it’s happening across the country.
There used to be in The Providence Journal, in my home state of Rhode Island, two or three pages of foreclosures on a high number. Now there’s a whole section that’s devoted to foreclosures. It is becoming a problem, not just for individual households, but it is a problem for communities, because the value of a foreclosed home brings down the value of surrounding homes, and it’s a cascading effect, and it ruins communities and impairs the lives of individual families.
Now we have to do much, much more to stem this decline, particularly with respect to housing values.
Yesterday, I note that Secretary Paulson announced significant steps, he proclaimed, to begin to revise the regulation of financial institutions and part of this is prompted by the subprime mortgage crisis, the securitization of these loans.
But there is nothing in this blueprint that dealt directly, which I think is the most important aspect of the problem, and that is home values.
The administration has been very keen and very quick to help Wall Street. The reality is we’ve got to help Main Street. We have to help individual homeowners across this country. If we do that, I think that will provide a surge of confidence to the economy which is the key factor in beginning a recovery from what looks like the beginning of a recession and perhaps a long recession unless we act promptly.
I’ve joined my colleagues to introduce this legislation, the Foreclosure Prevention Act of 2008. It builds on the economic stimulus package. It is a complement to the economic stimulus package. And I hope that we can move today despite previous opposition by my colleagues on the Republican side to take up this legislation, begin the debate, modify it if necessary, but move forward deliberately and quickly to address the issue of housing in the United States.
This legislation, if enacted, would help families keep their homes by providing counseling for foreclosure, by expanding refinancing opportunities, by getting the services and the counsels together to attempt to allow people to stay in their home. One aspect of this as mentioned by my colleague from Illinois, is the bankruptcy code modification that would allow these residences to be subject to a bankruptcy judge’s determination of a different workout plan for the home.
It would also help communities withstand the impact of foreclosures. I mentioned there is a cascading effect. One home is foreclosed, the other homes around it begin to automatically decline. This would provide community block grants to cities to purchase some of these homes.
We have to move quickly because one of the other aspects of the crisis, when these homes in urban areas are empty even for a matter of weeks or in some cases days, they’re stripped, the siding is ripped off, the copper piping is taken out. Unless there is someone to go in there and keep it in use or to board it up and protect it, then these homes are going to be lost, not just temporarily, but for a longer term as we have to repair the destruction. It is going to help businesses by expanding the carrier back period from two years to five years to utilize losses in 2006, 2007, and 2008.
And it will help, I hope, avoid foreclosure in the future. One of the issues it will deal with is the issue of clear disclosure of the maximum amount of a loan, the maximum monthly payment, legislation that I authored.
This will give the bumper sticker, a big warning label on a mortgage to individual borrowers, it will tell them what the maximum amount of money they’re liable for. The introductory teaser rate of $1,000 what month might be attractive, but if people realize within a year or two years they will pay two or three times that, it will, I hope, give them the information they need to make a better judgment for signing up for such a loan.
So this legislation is critical. It’s critical for families and it is particularly critical, I think, to ensure that we begin to work our way out of the looming recession in an economy that is deeply troubled. And I would hope that all of my colleagues would vote to go forward with this measure, and I hope ultimately to pass this measure.
Mr. President, I would yield the floor.
