Press Releases
Brendan Daly/Nadeam Elshami
202-226-7616
10/03/2007
Pelosi and Reid Urge Bush to Take Action to Address Subprime Mortgage Crisis
Washington, D.C. — Speaker Nancy Pelosi, Senate Majority
Leader Harry Reid, Congressman Barney Frank, Congresswoman Carolyn Maloney, and
Senators Chris Dodd, and Charles Schumer released the following letter to
President Bush today, urging him to take the steps needed to counter the
subprime mortgage crisis:
“We believe this situation demands a serious response
commensurate with the magnitude of the threats to individual homeowners,
communities and the nation’s economy,” they wrote.
Below is a text of the letter:
October 3, 2007
The Honorable George W. Bush
As you
know, we are in the midst of a subprime mortgage crisis. Families around the country are suffering
from either the reality or prospect of losing their home, which in too many
cases will bring financial ruin, depress surrounding property values, and
weaken local economies. Already, some
previously thriving neighborhoods have become ghost towns plagued by blight and
crime.
The
severity of the problem is clear. The Mortgage Bankers Association’s National
Delinquency Survey shows that the foreclosure rate for subprime borrowers has
hit historic highs. Foreclosure filings,
default notices, and auction sales have more than doubled from a year ago.
One
primary cause of this historic disaster is the proliferation of high-cost,
extremely risky subprime adjustable-rate mortgages (ARMs), which offer
short-term teaser rates that explode upwards after the two- or three-year fixed
period. In too many cases lenders and
mortgage brokers made these loans without regard to the borrower’s ability to
repay and without adequately disclosing the terms and risks. These lenders and
brokers adopted what Secretary Paulson acknowledged were “bad lending
practices” and disproportionately made high-cost subprime loans to African-American
and Latino families.
Many
observers believe that the subprime problem will only worsen in the coming
months. Some estimate that nearly 2
million American families will lose their homes to foreclosure after their
subprime ARM resets. The
We believe
this situation demands a serious response commensurate with the magnitude of
the threats to individual homeowners, communities and the nation’s
economy. Clearly, policymakers need to
be careful about bailing out those who made unwise decisions or encouraging
excessive risk taking in the future.
However, given the seriousness of the problem, a failure to adopt a
sufficiently aggressive response also poses great risks.
We
therefore urge you to take a number of immediate, critical steps.
First, we
urge you to help us get FHA modernization legislation enacted as soon as
possible. The House of Representatives
has passed related legislation, and the Senate Committee on Banking, Housing,
and Urban Development also has approved a bill.
We will do what we can to move legislation through the Senate in a
bipartisan fashion to make FHA loans more widely available in order to help
both new homeowners and those struggling with abusive mortgages. We also urge you to exercise your existing
authority to give the Government-Sponsored Enterprises (GSEs) a temporary,
one-year increase in their portfolio limits so these entities can provide
liquidity for subprime borrowers.
Second, in
order to do the outreach that is necessary to reach the millions of subprime
borrowers with resetting mortgages, we urge you to greatly enhance and
strengthen non-profit foreclosure prevention counseling organizations. These groups are playing the central role in
reaching out to troubled homeowners who have proven to be extremely reluctant
to discuss their difficulties with their servicers and need resources to meet
the enormous demand. As a first step,
Democrats are committed to passing a significant boost in funding targeted to
HUD-approved nonprofits specializing in foreclosure prevention, as well as
finding ways to provide more resources to these nonprofits. We urge you to support legislation to
increase this funding and deliver these critical resources that will help keep
families in their homes. We expect, however, that even with enactment of such
legislation, more resources likely will be required and we look forward to
working with you to make that happen.
Third, we
urge you to appoint a senior Administration official with the authority to
immediately address the subprime problem by overseeing and coordinating the
federal government response. Just as you
appointed a single official to oversee the response to hurricanes Katrina and
Rita, we believe the subprime crisis is of sufficient magnitude to warrant a
comparable appointment. This official
should work together with financial institutions, servicers, and regulators to
ensure everyone is doing what they can to help borrowers. One important role
would be to encourage lenders and servicers to more aggressively and routinely
modify ARMs and other unaffordable subprime loans in order to keep more
Americans in their homes.
Where
modifications are not possible, this individual should encourage the Federal
Housing Administration (FHA), lenders and the GSEs to make mortgages available
on fair and affordable terms to refinance these homeowners into stable,
fixed-rate loans. Some lenders and servicers
have made a good faith effort to do so already, but according to a Special
Report by Moody’s Investors Services, many servicers are not living up to
commitments made to Democratic leaders earlier in the year to reach out to
subprime borrowers facing resets.
Thank you for your
consideration of our concerns. Standing together with the American people, we
will protect their dreams and prosperity.
Sincerely,
Harry Reid
Senator Chris Dodd Congressman Barney Frank
FACT SHEET
October 3, 2007
· The problems
surrounding the subprime mortgage markets have pushed the housing market into
its worst slump in 16 years – weakening the American economy and threatening
American families.
· The new
Congress is taking us in a New Direction – working to restore the American
Dream by creating greater opportunity, economic security, and a chance for
prosperity for all Americans, not just the privileged few. The lending crisis poses an enormous challenge
to the American Dream for families across the economic spectrum.
· Up to 40
percent of current subprime borrowers could qualify for more affordable fixed
rate loans. According to Moody’s, only 1 percent of American homeowners with
loans experiencing an interest rate adjustment had received assistance from
their lenders.
· Democrats are
making real progress – passing crucial reforms to the Federal Housing
Administration so it can help people at risk of foreclosure stay in their homes
with affordable loans and refinancing options.
· We are also
pushing large financial institutions to create more affordable housing options
and new solutions for people facing foreclosure.
· Congress is
also working on comprehensive anti-predatory lending legislation to stop these
bad loans from being made in the first place--strengthening consumer
protections against abusive practices and making sure that consumers get
mortgages they can repay.
· The New
Direction Congress has taken significant steps to make the economy fairer (the
first federal minimum wage increase in a decade), to spur American innovation
to ensure our nation’s global economic competitiveness, and to make college
more affordable by providing the largest expansion in college aid since the GI
Bill in 1944 – all the while restoring fiscal responsibility (imposing ‘pay as
you go’ budget discipline for the first time in six years in Washington, and
balancing the budget by 2012
· A record
240,000 foreclosure filings were reported in August--more than double a year
ago--signaling that many homeowners are increasingly unable to make timely
mortgage payments or sell their homes.
· Some 2
million Americans will see their mortgage payments jump over the next two
years, because of an increase in adjustable-rate mortgages after introductory
teaser rates.
· Lenders are
doing far too little to work with borrowers whose mortgage interest rates have
adjusted and face foreclosure. A recent
survey of 16 top sub-prime loan servicers found that for the first six months of
2007, an average of only 1 percent of loans experiencing an interest rate
adjustment, or reset, had been modified to keep borrowers in their homes.
New Direction Congress Makes Progress
· Encourage
Lenders and Regulators to Take Steps to Avert Foreclosures: The House is pressing financial institutions
to keep borrowers out of foreclosure, and helping to stop avoidable
foreclosures by obtaining clarifications of banking rules and regulations to
establish that institutions can modify mortgages before borrowers default. Congress is urging regulators to increase the
amount of loans and mortgage-backed securities that Fannie Mae and Freddie Mac
can hold – thus increasing liquidity in the market.
· Reform FHA to
Expand American Homeownership: In
September, the House passed the Expanding American Homeownership Act of 2007
(H.R.1852), a bipartisan bill to enable the Federal Housing Administration
(FHA) to serve more subprime borrowers at affordable rates and terms, recapture
borrowers that have turned to predatory loans in recent years, and offer
refinancing loan opportunities to borrowers struggling to meet their mortgage
payments in the midst of the current turbulent mortgage markets. These reforms, including provisions that
would lower down payments and increase loan limits, would help some 200,000
additional families, if not more, purchase or refinance into safe FHA-insured
mortgages. (The Senate Banking committee has reported out similar legislation.)
· GSE/Make
Fannie Mae and Freddie Mac Loans Part of the Solution: The House has passed comprehensive and
bipartisan GSE legislation (H.R. 1427) to improve the regulation of Fannie Mae
and Freddie Mac, and the Federal Home Loan Bank system. The bill raises the GSE
loan limits for single family homes in high cost areas, so that these entities
could purchase more loans in higher cost areas (lowering interest rates for new
homes and refinancings in those areas). These government-sponsored enterprises
(GSEs) provide liquidity to the mortgage markets by buying loans already made,
freeing up money for new mortgages and refinances. (The Senate Banking Committee is expected to
take up similar legislation this fall.)
· Housing Counseling to Prevent
Foreclosures: The Senate included $250
million total for housing counseling in HOME account, with $200 million for
housing counseling to assist many distressed homeowners who are trapped in
unaffordable loans to prevent foreclosure. (H.R. 3074, Transportation Housing
Appropriation bill as passed by the Senate.)
More Progress to Come:
Congress Will Act to Strengthen Protections
· End Taxes on
Mortgage Debt Forgiveness: This week,
the House will pass a bipartisan bill to end the tax on phantom income when a
lender forgives some part of a families’ mortgage in foreclosure. Under current
law, the debt forgiven following mortgage foreclosure or renegotiation is
considered income for tax purposes, resulting in tax liability for individuals
and families. The bill provides tax
relief by permanently excluding this mortgage debt forgiven under these
circumstances from taxes. (H.R 3648, Mortgage
Forgiveness Debt Relief, Chairman Rangel; Sen. Stabenow S.1394)
· Fair
Treatment for Homeowners in Bankruptcy:
The House will consider legislation to prevent up to 600,000 Americans
from losing their homes in bankruptcy over the next two years -- by giving
bankruptcy judges the ability to revise mortgage contracts, much as they
already do when sorting out payments to other kinds of creditors. This bill will permit bankruptcy courts to
give homeowners more time to pay their mortgages with more reasonable interest
rates. (H.R.3609 Emergency Home Ownership and Mortgage Equity Protection Act of
2007, Rep. Brad Miller; Senator Durbin is expected to introduce similar
legislation this fall)
· Affordable
Housing for those Losing Homes: Next
week, the House will consider H.R. 2895, The National Affordable Housing Trust
Fund Act of 2007 to establish a national affordable housing trust fund to build
or preserve 1.5 million homes or apartments over the next ten years, without
increasing the federal deficit.
Increasing the supply of affordable housing will help ensure that
families who have lost their homes due to predatory lending or a family financial
crisis, such as ill health or job loss, can find housing.
· Prevent
Future Subprime Crisis/ Strengthen Protections Against Risky Loans: To prevent these bad loans from being made in
the first place, Chairman Frank and the Financial Service Committee Democrats
are developing comprehensive legislation to put a stop to predatory lending
practices. The bill will establish clear
licensing and minimum qualifications standards for mortgage brokers and bank
loan officers, and ensure that these originators do not “steer” consumers into
unnecessarily expensive mortgages. It
will ensure that borrowers receive clear disclosures about the loans they are
offered. The legislation will make all
relevant market players responsible for following a basic principle of sound
lending and consumer protection: ensuring that borrowers can repay the loans
they are sold. It will also address the
most egregious lending practices by placing special restrictions on truly
high-cost loans.