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Remarks as Prepared: Good morning.  Today, the Senate Committee on Banking, Housing and Urban Affairs is meeting to hold a hearing entitled “Turmoil in the U.S. Credit Markets: Examining Proposals to Mitigate Foreclosures and Restore Liquidity to the Mortgage Markets.”  Last week, we had an excellent hearing to look at one result of the turmoil we are experiencing in the capital markets – the decision of the federal government to commit $29 billion in taxpayer money to rescue Bear Stearns.  Today, we are focusing more on the other end of the spectrum – the impact of the crisis on homeowners.

This is the second hearing we are holding on this topic.  The first was held in January.  Since then, the crisis only seems to have gotten worse.  It has spread from housing to other areas, such as student lending and municipal finance, and I expect the Committee will examine these other areas, as well, in the weeks to come.

This hearing could not be more timely.  Today, after a week of intensive discussions and negotiations, the Senate will pass the “Foreclosure Prevention Act of 2008.”  There are a number of important provisions in the legislation:

• The bill adds $150 million to the counseling budget. 

• It includes an expansion and modernization of the FHA program, which will create a real alternative to the abusive subprime lending so many working families turned to in the past several years, and which has greatly contributed to this crisis.

• It adds about $10 billion in increased mortgage revenue bond authority for the states, which will help them provide some lower-cost credit to distressed borrowers.

• And the bill includes nearly $4 billion for state and local governments to clean up the mess left by the historic foreclosure problems we are experiencing.

But this legislation falls short of its lofty title.  It does not do enough to help the millions of American families facing foreclosure.  Across the country, nearly 8,000 foreclosure filings are taking place each and every day, according to RealtyTrac.

The most significant challenge we now face is helping people tottering on the edge of foreclosure to keep their homes.  It is all well and good to provide funds to help pick up the pieces.  But we need to do far more prevention, so we have less need for clean-up.

To that end, I have been working intensively with my colleagues on both sides of the aisle as well as outside experts on the “HOPE for Homeowners Act of 2008.”

Briefly, this bill would create a new fund at FHA to insure new, affordable mortgages, for distressed homeowners.  These FHA-mortgages would refinance the old, troubled loans at significant discounts.  The new loans could be no larger than the borrowers could afford to pay, and no more than 90% of the current value of the home.  This formula is similar to the one laid out by Federal Reserve Chairman Bernanke in a speech several weeks ago, when he noted that creating new equity for underwater borrowers may be a more effective way to prevent foreclosures.  Now, apparently, the Administration has also embraced this concept.

Lenders and investors will have to take a serious haircut to participate in the program.  But, in return, they will receive more than what they would recover through foreclosure.

Borrowers get to keep their homes, but they must share the newly created equity and future appreciation with the FHA program, to help offset possible losses.

Only owner-occupants will be eligible for this new program, and only those who clearly cannot afford their current mortgages.  There will be no investors in the program.

In addition to helping homeowners, and the communities in which they live, this program will help stabilize capital markets, put a floor under housing prices, and get capital flowing once again.  The big enemy of smoothly functioning capital markets is uncertainty.  Today, nobody knows what the subprime mortgages underlying the alphabet soup of complex securities – CDOs, SIVs, RMBS, and the like – are worth.  This program will help put a value on these mortgages.

We have another hearing on this proposal next week, where we will hear from a number of government witnesses.  After that, I want to work with my colleagues to see if we can move this legislation.  As you know, Representative Barney Frank is pushing similar legislation in the House.

I understand that some people oppose this kind of program on the grounds that we should not reward people who acted irresponsibly.

As we have seen from numerous hearings we have held over the past 15 months, many people facing foreclosure today were victims of abusive and predatory lending practices.  Most were trying to act responsibly, but they were led badly astray by unscrupulous mortgage brokers and lenders.  They were victims of what Mr. Stern, one of our witnesses this morning calls “mortgage malpractice.” 

In fact, the Wall Street Journal did a study in which it concluded that 61% of the subprime borrowers it reviewed had high enough credit scores to qualify for prime loans.  We know that these brokers portray themselves as “trusted advisors” to the unsuspecting borrowers, while steering those borrowers into higher cost loans in exchange for higher commissions. 

Lenders and brokers gave these borrowers, many on fixed incomes, mortgages with exploding interest rate payments that they knew the borrowers could not afford.  These are among the homeowners we are seeking to help.

We seek to help them because it is the right thing to do.  To paraphrase Franklin Roosevelt, when your neighbor’s house is burning, you don’t charge him for the use of your garden hose.  You simply lend it to him. 

But we are not acting for their sakes, alone.  Today, hundreds of thousands of our neighbors’ homes are figuratively burning.  And, like any fire, the damage threatens to spread – every home that goes into foreclosure lowers the value of the other homes on that block by $5,000.  It reduces property tax collections, which leaves local school systems struggling.  It hurts the ability of the local government to provide adequate police and fire protection, and social services, just as the need gets more pressing.  The ripple effects are severe and widespread.

So we owe ourselves and our communities, as well as our neighbors, our help in a crisis like this.  We must act to put out this fire.

That is what I hope to do in the coming weeks.  I am looking forward to hearing from the witnesses today, and from my colleagues, about how to make the draft legislation I’ve circulated a better document.  I hope we can do this in a cooperative way, as we were able to do with the legislation we are passing today.

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