Senate Proceeding on May 4th, 2009 :: 1:45:35 to 2:05:35
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1:27:05 to 1:45:35( Edit History Discussion )
Speech By: Jon Kyl

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quorum call: mr. dodd: mr. senator from connecticut. mr. dodd: mr consent that the call of the quorum be the presiding officer: without objection.

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mr. dodd: mr. president, i -- the presiding officer: morning business is closed under the previous order the senate will resume consideration of which the clerk will report. the clerk: s. 896, a bill to prevent mortgage foreclosures and kred -- credit availablity. mr. dodd: mr. president? the presiding officer: the

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senator from connecticut. mr. dodd: i'm going to take a few minutes -- i know that the leadership has made these announcements, but as i have been told at 5:30, there will be two votes on the amendments offered by our louisiana, senator vitter. and i'm going to take a few minutes here once again

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review the underlying proposals that senator shelby of alabama and i have crafted as part of this bill. and then i'll take a few minutes to express my views on the two vitter amendments. and himself, if -- he may come over to talk about this or others who are interested in the two amendments may show up to

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express their interest in it as well. i want to begin by thanking the majority leader, senator reid, for scheduling the time here for the consideration of this bill. obviously the importance of foreclosure mitigation is still critically important, and i still believe, as many do, that the root cause of our financial problems in this country began

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with the residential mortgage market. the predatory lending that went on to literally millions of people in country, "the wall street journal" reported tha some 60% to 65% of people who loans, subprime loans, qualified fo

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conventional mortgages are less costly than subprime mortgages. because there was a greater financial reward for brokers an others who were able to market and sell the subprime mortgages, they were marketed to people and of course those became far more costly, there were adjustable rate mortgages, teaser rates. almost no downpayments required,

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very little interest payments for months on end and ballooning to the point where these people could cases could not afford them at all. to the point where that problem migrated to other areas of our economy and as a result we find ourselves today after recession, and a deep one at that. this bill is signed to families save their homes.

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that's what it is designed to do. there's are a lot of provisions in here that relate t the smaller banks in the country and how we can be some help to them to get credit moving. i did this last week at the close of business. but i thought i would spend a few minutes t the major provisions of the bill without going into great detail. and address the two vitter amendments that will be offered

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later this afternoon. this amendment that we've offered is a substitute amendment that senator shelby and i have before us now, which is s. 896, it expands the of tools available to try t prevent foreclosures and the ability of homeowners and loan services to use those tools.

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it includes provisions to make the banking system more stable and improve the availablity of credit. very specifically there are eight or nine or 10 major provisions of the b the first of these provisions expands the ability of the federal housing administration an rural housing to modify again, i made the point last week, this is absolutely critical.

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f.h.a. has been a savior in many cases o providing credit when credit has not been available sewhere to keep a limited housing market open. and it is very impor they have the tools to do that and certainly the tools to modify they do for nongovernment loans that they service. and this part of the bill is one

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that can make a huge difference to people. there will be amendments offered to modify this provision of the bill. and i would urge my colleagues toisten carefully to that debate. if we end up undermining the role of the f.h.a. at tht critical time that we could -- then difficult for these foreclosures to

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possibility of people remaining in their homes. secondly the bill expands the access homeowners legislation. it makes a number of changes to that bill we adopted last summer. a program that was well intended but left a lot of problems in terms of the effectiveness and efficiency of the legislation.

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this bill will allow for the option to lower fees, streamlining certification requirements. we give the secretary of the housing agency in our country limited discretion to determine the amount in distribution of future appreciation. we ban the very wealthiest in our country from being involved in this program. it was never intended to be such.

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and we allow for incentive payments for servicers and ago gnattors who -- originators to participate in the program. it would be average family. we create more enforcement tools for the f.h.a. to eliminate bad lenders. this is an important provision that provides the tools to the

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housing and urban development agency to more expeditiously drop to strengthen those provisions and make sure that resources go to thers that need certainly not be used by lenders who are violating the rules of f.h.a. we then provide for a safe harbor for services that would either modify a loan consistent

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with the obama foreclosure mitigation plan or refinance the borrower into the hope for homeowners. this is a contentious issues between and trying to do something with regard to foreclosure mitigation much and this has been narrowly drawn. the house-passed bill, and i say this respectfully to body, they have a broad

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provision, this is an idea that senator martinez of florida offered a number of weeks he has since modified this a bit and i agree w restrict the time, duration, circumstances in which a safe harbor would apply. what is a safe harbor? it is designed to help the servicers to modify loans. servicers who have contracts

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with the investors are obviously somewhat reluctant to watch a modification of any of these things which would deprive them of the ability to have a legal action to engage in a modification. by creating the safe harbor for the servicers, we encourage them to modify those loans with the borrower. in the absence of which i doubt

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any servicer will be willing to step forward in doing so this is an absolutely critical area and while there are still concerns on the part of some, i believe it is the right step to be taking. it is limited in duration, it is limited to only the obama foreclosure mitigation proposal and the hope for homeowners. only in those two instances an

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therefore would not be as open and broad based as that have been adopted elsewhere. i would encourage my colleagues to be supportive. there will be an effort to change this in a way that i think would make it unworkable in terms of achieving the desired results here. again, with 10,000 foreclosures again going on every single day in our country, we need to try

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to bring a closu problem where we can. this is not going to solve every foreclosure, but it can certainly make a huge difference. it is estimated between 1.7 and two million foreclosures could be avoided with this kind of proposal in the bill and with the obama proposals and the hope for homeowners proposals, we think that would make a significant difference, allow people to stay in their homes an

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allow those lenders to get some payment back rather than the property falling into foreclosure the presiding officer knows, the effect of a foreclosed property in a neighborhood is very, very daunting. we know for a fact, of course, with one foreclosure in a neigorhood of one square block area that the value of every

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other property in that square as the last thing that you want to see on your block in your neighborhood is foreclosed properties deteriorating. if you've got a home there and that property is declining in value by the day, obviously everyone is adversely affected.

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i know this is a conscientious issue for some, i'm pleased that most of the consumer groups, the realtors, the financial roundtable and others strongly support the provisions that senator shelby and i have in this bill when it comes to this issue of safe harbor. again, i want to thank senator martinez, my colleague from

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florida for initiating the idea of this proposal. a fourth or fifth provisi authorizes prevention of foreclosure. senator reid of nevada authored this provision, he created the space and time for this bill to come up has been critically important but in addition to

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this language senator schumer and others offered language to support to support the prevention activities that is counseling activities. and it proved very, very helpful. this can be complicating areas to get into the issue of modifying a mortgage requires some good counseling. this isn't a matter where the

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average person can walk in and negotiate for themselves. and by having people out experienced and knowledgeable as we now have across the country that can assist in this process. i think it has been a great, great asset and these additional re nevada has offered make a huge difference for people across our nation in addition to what has already been allocated. then we have some provisions as

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well that that is to increase the federal deposit insurance for the federal insurance to $250,000. i mentioned how important this is investors and depositors, those who have a passing knowledge or history of great depression know

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what happened when fear gripped the country and there were these great runs on the banks, people running and take their deposits out of the banks feeling that they would lose them and the old notion of hiding mattress was not a joke. people actually did that and buried their hard-earned money on their property rather than keep it in what they perceived

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as an unsafe institution where they could lose those resources in the 1930's the federal deposit an insurance corporation was created to provide, among other things, an ability when a bank is in trouble to make ansition from a closed banko onet couldpen so thatould not lose their resources as well as providing insurance so that that money would not be lost, a full

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guarantee for up to $100,000. the world has changed a lot since the 1980's when i believe it was that provisio -- $900,000 was added over the last 29 years, 30 years, so by raing it to $250,000 i felt was necessary to assist in providing the further guarantee and assistance

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as well. we increased the borrowing thorty in this bill to promote the fdic and national credit union administration from $130 billion to $100 billion in the case of the fdic and up to $6 billion for the national credit union administration. there is additional authority, but it requires the approval of

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tw fdic or the national credit union administration, the third vote of the federal reserve board and agreement by the secretary and the president of the united states. mr. president, we stretched out the pments of assessments to rebuild bank this rift to eight -- thrift to eight years.

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this was an important provision for many lending institutions that period of assessment is essential. if it is too short it buts huge financial -- it puts a huge financial burden on those institutions. i believe the eight years was a provision that was very important to these institutions and one that they're very pleased that our legislation

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includes, and i -- i hope that -- that will work as well as we intend it to. we also improved the fdic systematic risk special assessment authority that is a real relief to institutions that would not participate in that program. it would have been assessed. this provision of the bill protects them from that kind of assessment and,

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that's a very quick review of the major provisions of the bill. as i mentioned earlier, mr enjoys broad-based support in our country from major groups of people, from major consumer groups in our nation. the national consumer law center center, the independent community bankers, the center

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for responsible lending, along with the housing policy council, the financial services round-table, the american bankers association. rarely do i find tse organizations coming around a bill. you normally have the consumer groups on one side and your fina open. that's normally how it works. but because of the effort made by so many people on our

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committee and elsewhere, we have put together a piece of legislation which we think will make a difference on foreclosure foreclosure, provide some needed reforms to our major financial institutions, provide counseling and additional support for people who seek that kind of help as well as attract the kind of support from diverse institutions here that watch and

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care about these -- about these groups very, very much. last included letters of support. i should lenders want an soarvet mid-sized -- association of mid-sized mortgage bankers and the mortgage bankers association as well have endorsed what senator shelby and i have put

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together in this -- in this bill.so, mr. president, that's a rough -- in this bill. so, mr. president, that's a rough s legislation. of course, anybody who's interested in further information about this, we welcome them toome over and discuss any provisions they may have some interest in. let me at this point if i can, as i said, address the amendments which this body will

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consider at 5:30. the first one i'll discuss, mr. president, is the -- senator vitter of louisiana's amendment number 1016. this -- this amendment, as i understand it -- and obviously senator vitter will come and has explained his own amendment. and if he -- so i hope i'm being

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accurate in describing this. under the emergency nick stabilization act, it current -- economic stabilization act, it currently requires the tresh troy repay itsinancial assistance with the assistance of the federal agency. when the recipient is repaid, it must also buy back the warrants it provided to the treasury at

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the current market price. amendment, it would require the tresh troy permit a tarp recipient assistance it received if the institution would be well-capitalized -- i'm quoting there from the amendment -- well-capitalized after repaying the funds. capitalization of our institution is a critical component, as the presiding

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officer knows, a very important, certainly essential before one would even consider, again, having tarp money come back. the whole idea of insisting upon properly capitalized institutions. under the amendment, treasury could not condition the right of a tarp recipient to repay tarp on an agreement to also buy back the warrants. under the current law, payback of the tarp money must be

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accompanied by the repurchase of those warrants. in fact, the amendment gives the tarp recipient the right to determine when buy back the warrants it received. the tarp recipient is not required to pay market price for them. mr. president, i -- i oppose the amendment and urge my colleagues to vote against it, and say this respectfully of the author of the amendment, senator vitter, a

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member of our committee. but i'm concerned that this further destabilize our financial system and could really harm taxpayers who, of course, are the ones who put up the tarp money. under this amendment, the treasury would be forced to permit a bank that received tarp money to repay that assistance

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based on the sole the bank would remain well-capitalized. now, again, i emphasize, that's an important consideration but it's not the only one. if there's one thing we've learned from this crisis, the definition for what "well-capitalized" means is inadequate. for example, citibank and ban of america are well-capitalized according to the standard in the amendment.

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and despite their troubles, they would be able to return the tarp mey that they received. the standard in the amendment would establish -- the amendment would establish is ineffective and i think n comprehensive enough. currently the regulators can consider the bank's nothing a more complete

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its assessment to return tarp funds. amendment would tie the regulators of this one partular factor of capital. a very important one but not the only one. a fact hear that has already proven to be faulty and insufficient to weather today's economic climate. to get out from under the executive exek compensation restrictions and other restrictions imposed by the

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treasu institutions in a condition might put themselves and the broader economy at risk. anthat's why this is important. if we're only talking about one institution, certainly getting th something we would all welcome. but i think we need to look at beyond what the effect is of the one institution but overall what is the effect on the financial system. and that was the reason why these tarp $went out in the

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first -- dollars went first place. and so while being well capitalize second-degree important if you thriment to that and that only and allow an institution, such as the ones that i've mentioned, to then move beyond that, there could be put at risk the lar which is, of course, the major goal, they'e get t economy functioning -- to get the overall economy functioning and moving in the right direction.