July 25, 2008
Statement

Floor Statement on the Housing and Economic Recovery Act

MR. REED:  Mr. President, I wish to talk about the pending passage of extraordinarily important legislation: the Housing and Economic Recovery Act. We are debating it today, and it is one of the most significant pieces of legislation that we will address in this Congress and perhaps in many Congresses to come. It is in direct response to the housing crisis, which has not only undermined home values throughout this country, forcing thousands and hundreds of thousands of people into foreclosure or onto the verge of foreclosure, but its effects have essentially been transmitted throughout the entire economy, and we are seeing a huge economic downturn. Unless we provide some type of footing for housing in the United States, I do not think the economy will begin to recover. It is perhaps the most significant economic issue that we face.

For months now we have been battling to get this legislation through, and we are now on the verge of passing this significant bill.  I am excited for that moment, and I wish to first commend individuals who have played a critical role. Senator Dodd has been remarkable in his management of this legislation, along with Senator Shelby.  They have played a dynamic and very creative and very positive role in bringing this legislation to final passage. They have been ably assisted by their staff, and I have been particularly assisted by my staff members, Kara Stein and Didem Nisanci. T hey have done a remarkable job.

For the first time in a generation with this legislation, we are beginning to update, modernize, and strengthen the institutions that undergird our mortgage and housing markets to provide some footing, some economic traction, so that Americans can begin to feel somewhat hopeful and confident about their economic future again. We are also providing grants and tax incentives to encourage the development of housing across the Nation for low-income families.

One of those issues that has been persistent and, indeed, pernicious for many, many, many years before the onset of this housing crisis is the lack of affordable housing in many parts of the country--in fact, practically every part of the country. Low-income families have been struggling for decent, affordable housing.

In this legislation, we are providing a response to their struggle--a response I think will not only benefit low-income families but benefit communities throughout the Nation.

This legislation is a comprehensive and realistic response to the current crisis. I believe it will help millions of Americans to find decent, safe, and affordable housing.

Again, let me thank Chairman Dodd and Senator Shelby for all of their hard work and their very astute, very wise judgments at various places along the way where this legislation could have gone off the track. They have done a remarkable service for this body and for the American people. This bill is not just going to provide families with some hope; it is also going to provide families with real help, and that is so critical at this juncture.

For families, such as many in Rhode Island who are struggling to stay in their homes, this legislation creates a new program at the Federal Housing Administration--the FHA. This HOPE for Homeowners Program will allow families who have mortgages that are underwater--their mortgage is greater than the value of their home at this time--to refinance into 30-year, fixed-rate, FHA-insured mortgages they can afford. It is going to increase funding for home ownership counseling so that more families have access to these much needed services.

This legislation also aids our returning soldiers, sailors, airmen, and marines. I just had the privilege of traveling into Iraq and Afghanistan with Senator Hagel and Senator Obama to personally thank these young men and women and to tell them we are with them. We are with them not just there in the war zone, but we have to be with them when they come home so they have a chance when they come back to maintain their homes and get the services they need. This legislation will help them by lengthening the time a lender must wait before starting the foreclosure process and by providing these soldiers, sailors, airmen, and marines with 1 year of relief from increases in mortgage interest rates. It is fitting that we spend a moment in this legislation to recognize these brave young Americans.

It will also provide $3.92 billion for States and local governments for the development of abandoned and foreclosed homes. It has been estimated that Rhode Island will receive about $56.7 million of this community development block grant funding, which should help stabilize many of our neighborhoods and stem the significant losses in the home values of surrounding neighbors.

What happens when a home is foreclosed? It affects dramatically and traumatically the individual family, but the effect is not contained to that home because the values of the surrounding homes go down as well. Almost like a cascading effect, one foreclosure follows another, home values descend, and then you have a blighted community. We have seen this in Rhode Island.

My colleague, the Presiding Officer and junior Senator from Rhode Island, has traveled through some of our communities where not one home, but two, and then three, and four, and then ten are foreclosed--then suddenly we have a problem which is eating at the heart of the community.

This CDBG money will help cities move aggressively, first, to protect the physical structures of these homes. One of the things we have seen--not just in Rhode Island but nationwide--is that when these homes are abandoned, they are subject to predators who come in, rip out the copper piping, the wiring, take off the siding, and before you know it, you have lost that opportunity to put another family in that home. It is a great loss to the community.

We have done much over the last several decades to begin to turn the corner in many of our communities in Rhode Island. You could see the sense of pride and progress as homes were fixed up and new properties were developed, but we stand the chance of losing that, of letting it slip away. So without this community block grant development money, we will see neighborhoods turned inside out, begin to fail, and provide a further pull downward on the economy in so many communities in this country. This is another important aspect of this legislation.

This legislation also will help to stabilize and stimulate the real estate market.

This has been one of the great engines of our economy over the last decade or more.

This legislation contains a provision that will provide a $7,500 tax credit for first-time homebuyers--help people get back into the real estate market.

It will also provide states with $11 billion of additional tax-exempt bond authority in 2008 to help refinance subprime loans, make loans to first-time homebuyers, and finance the building of affordable housing. Many states--particularly in our State of Rhode Island--have housing authorities that have done a remarkable job of partnering with private, not-for-profits, and local commercial and financial institutions to try to help develop affordable housing, help people who are having difficulties with their mortgages. This additional bonding authority will give more support to these local efforts. It is a critical issue.
  
The legislation also increases the GSE--which are Fannie Mae and Freddie Mac--FHA, and VA loan limits. This is going to allow more families to access conventional mortgage rates and be able to place themselves in affordable and sustainable mortgage products. One of the problems we have seen over the last several years has become much more vivid. Looking back, because we didn't empower the VA, FHA, and GSEs to more aggressively provide access to conventional loans, many families turned to these exotic mortgages with accelerating interest rates. As a result, they find themselves now in a great dilemma. Studies have shown that many people who were getting these subprime loans would have qualified for one of these conventional loans with a conventional interest rate. Because we weren't reaching out through these Government agencies, the VA, Federal Housing Administration, and also incentivizing the quasi-governmental agencies, Fannie Mae and Freddie Mac, these people had very little choice but to be subject to the blandishment and allure of these seemingly good deals in the subprime mortgage market. Now we are getting much more aggressive with conventional mortgages. That will be, I think, going forward a good thing.

Important also, this legislation helps restore confidence in Fannie Mae and Freddie Mac. It creates a new, strong, independent, world-class regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

The bill also includes a provision, at the request of Secretary Paulson and the administration, which will authorize the Department of the Treasury to provide an explicit backstop should the GSEs encounter grave financial problems.

I am pleased also that the Federal Reserve's consultative role with the newly created regulator will also be also limited to the duration of this authority rather than in perpetuity.

I firmly believe that issues surrounding regulatory reform need to be seriously considered at length for the remainder of this year and in the upcoming year. We should not be merely bootstrapping these issues to the current bill without significant deliberation on the role and the ability of the Federal Reserve to perform such responsibilities. Let me say that again. It is vitally important to signal to the markets and the American people that Fannie Mae and Freddie Mac are still vital, valuable parts of our mortgage market. In fact, they represent right now roughly 70 percent of that market. If they are faltering, if our real estate markets decline further, that is going to be a significant weight on our overall economy--even more significant than in the present day. Restoring confidence in Fannie and Freddie and the marketplace is one of the building blocks to beginning to restore and rebuild our economy going forward. These provisions will, I hope, do it in such a way that they provide psychological support so that actually drawing down funds by Fannie Mae and Freddie Mac may be unnecessary. This backstop will send, I think, the right message to the marketplace so we can move on to begin to deal with some other issues with respect to the larger financial markets of this country, and indeed the world.

Finally, let me mention some of the provisions I am particularly proud of in the bill. They represent the culmination of years of work--not my work alone, but work on which I have taken upon myself to provide some, I hope, leadership.

I have been working to create a national affordable housing trust fund, this in response to the needs I have seen--and my colleague, the junior Senator from Rhode Island, has seen--around the country, with families struggling to find a decent place to live. Without a decent and a permanent place to live, how can you expect children to succeed in school, if they are in three different schools when families move from one rental to another one? How can families choose between shelters at all, when apartments are riddled with lead hazards, which impacts the health and welfare of a child and the family? How can you expect someone to confidently go out and look for a job and maintain a job, when they are asked for a permanent home address and they have to scribble something--either make it up or change it repeatedly? These are the challenges many face because we don't have adequate affordable housing for many of our citizens. Prompted by that, I have, since I have been in the Congress--the House and the Senate--been working for the day we can provide more support for affordable housing for our citizens.

When I was chair and ranking member of the Housing and Transportation Subcommittee of the Banking Committee during the last few Congresses, it became clear to me that our Nation had this affordable housing crisis. One of my first public policy endeavors as a young lawyer in Rhode Island was to be the pro bono legal counsel to Amos House, a wonderful organization in our home State, in Providence, which attempted to provide support to people who were poor and also provide some housing. I first became convinced that if we can provide stability in housing, that would go a long way towards giving people the confidence, self-esteem, and the skills needed to master the challenges of living in a very difficult economy.

Housing is expensive now--very expensive. It is falling, but it has gone up dramatically. The affordable housing crisis continues to be with us. Indeed, one of the ironies of the marketplace will be--and I hope quickly--when the market restores itself and home values begin to rise because of this legislation and other legislation, it will make it even more difficult for low-income and modest income Americans to find a place to rent or buy. We want the economy and the housing market to come back strong, and we want housing values to rise. But we cannot forget the people who may be left behind because their income is flat.

So this affordable housing provision is critical. There is no place in this country, for example, where an individual with a full-time job, at the minimum wage, can afford a two-bedroom apartment. Today, the minimum wage is going up, which is long overdue; but even at $6.65 an hour, that doesn't leave a lot for a good, safe two-bedroom apartment for a family. We have to do more. This legislation does more.

In my State of Rhode Island, the average wage for a renter is $11.61. In order to afford the fair market rent for an apartment at this wage, a renter must work 68 hours per week, 52 weeks a year. If you are making the average wage, in order to afford a decent two-bedroom apartment, you have to work 68 hours a week, 52 weeks a year. People are doing that. They are doing it for their children; they are doing it to make sure that at least there is a safe and healthy place for their children. That is an extraordinary burden. That is just to pay the rent. What about the increased food prices? What about the gasoline prices we are all recently talking about with such intensity?

This legislation creates an affordable housing trust fund from a less than one-half cent fee on each new dollar of business that Fannie Mae and Freddie Mac engage in. This is not from the taxpayer. This is from the business activities of these government-sponsored entities. A less than a half-cent new fee on each new dollar of business.

The fund, we estimate, is going to provide approximately $500 million per year for the building, preservation, and rehabilitation of housing for low-income families. Rhode Island should receive approximately $3 million from the trust fund program once it gets up and running.

Part of the money collected from Fannie Mae and Freddie Mac will also be allocated to a new program that will be run by the Secretary of the Treasury, called the Capital Magnet Fund.

Community development financial institution and nonprofit housing developers will be able to apply for funding if they can show an increased investment in the development, preservation, rehabilitation, and purchase of affordable housing for primarily low-income families. So there are basically two funding streams. We hope it will incentivize the use not just of these funds but additional private funds so we can provide even more support for affordable housing.
  
The grantees of the capital magnet program must show they can leverage at least $10 in private dollars for each dollar they receive from the Capital Magnet Fund. That is a pretty good deal. If they can leverage $10 of private investment for $1 of investment from that fund, that will multiply many fold the effect of these affordable housing dollars. These grantees will have to show that leverage and show innovative ways in which they can deliver affordable housing services. This will be a private solution to this problem. These grantees are primarily community development financial institutions or not-for-profits, who want to go ahead and support affordable housing in their communities.

This funding will be used to create and support financial programs that dramatically increase investment in low-income housing, such as revolving loan funds, risk-sharing loan programs, loan-loss reserves, and affordable housing trust funds at the local level.

I also helped draft provisions that would require Fannie Mae and Freddie Mac to purchase more mortgages made to low- and very low-income families. This should increase the access of these families to 30-year fixed rate conventional mortgages. These provisions also require Fannie and Freddie to purchase more mortgages for rental housing built for low-income families, which decreases the mortgage rates on these mortgages. Frankly, more financial institutions will make the mortgages because they will be able to sell them to the secondary market.

The legislation also includes the text of a bill I introduced, called the Mortgage Disclosure Improvement Act. These provisions require that consumers are provided with timely and meaningful information regarding the terms of their loan, including loans that refinance a home or provide a home equity line of credit. As we look back on this subprime crisis, so many times borrowers were totally unaware of the details of the mortgage. They might have been able to afford the first year of payments, but once the escalator kicked in, they were out of the box. They never understood this fully. Frankly, there were more incentives for the brokers and dealers of the loans to obscure the bad news than to deliver the news to the borrowers. With these improvements, people will have fair warning. They will have the information they need to make a better judgment about the mortgages they will sign up for.

In particular, the TILA, the Truth-in-Lending Act form, will now show the maximum payment a consumer might have to make under the terms of the loan, and increase penalties if a lender doesn't provide this information in a truthful and timely way to the consumer. You will know the maximum exposure you will have as a borrower. That should be a sobering caution for people who are trying their best to get into a home.

I am also pleased that this bill includes language I authored to expand access to HUD-approved counseling programs by allowing any low or moderate income homeowner to be eligible for financial counseling services. This provision will allow many more families to get the advice or assistance they need to help keep their homes.

As most of you know, FHA also insures reverse mortgages that can be used by homeowners age 62 or older to convert their home equity into monthly streams of income, or a line of credit to be repaid when they no longer occupy the home.

As the coauthor with Senator Allard of a bill to improve the home equity conversion mortgage program, I am pleased this bill contains our language to remove the current congressionally imposed 275,000 cap on the number of reverse mortgages that FHA can insure per year. This should allow the successful FHA program for seniors to expand and serve more seniors.

The bill also includes important provisions to protect our seniors from fraudulent practices, such as requirements for independent, third-party counseling before they enter into the mortgage, limits on the amount of origination fees that can be charged, and prohibitions on requiring the purchase of other products, such as insurance or annuities. This is a good program. We think we have made it better and believe it will now be able to serve more seniors.

Additionally, the legislation contains language I authored to use $25 million in FHA savings every year for the purpose of modernizing and improving FHA's technology, processes, and program performance. This funding can also be used to provide more staffing for FHA's newly expanded programs.

This funding is critical to ensure the success of the FHA modernization proposal since it will allow FHA to access cutting-edge mortgage industry practices and procedures. If we want the FHA to be a strong participant in the mortgage market, they have to have the modern tools to do that, not only to serve more borrowers but also to protect against problems, to protect the resources they are committed on behalf of the Government to use for the benefit of our fellow citizens. So this modernization provision is absolutely critical, it is important, and I am glad it is in the bill.

We are at a critical juncture, and I am very pleased that we have finally been able to reach bipartisan agreement on this legislation. Again, it is a tribute to Senator Dodd and Senator Shelby and so many others and to a remarkable staff who have worked so hard. I am most proud of what we have been able to do to increase access to credit and affordable housing for low-income people in Rhode Island and across the Nation. This legislation is going to be the linchpin that helps millions of families have decent, safe, and affordable housing.

It also should restore confidence in not only our Nation's housing market but in our Nation's economy. As we move forward, I think we have much to learn from this experience, including how integrally connected our housing markets and capital markets have become. Safe, decent, and affordable housing should not just be the American dream, it should be the American promise. I look forward to witnessing the good this bill does in moving us in that direction.

As a final point, my colleague, Senator Sanders, has shown remarkable leadership to get LIHEAP funding onto the floor of this Senate. We need it. One of the responses, one of the immediate responses--not talking about drilling that 10 years from now will put more gasoline into the world market--in immediately dealing with the crisis this fall and winter for families everywhere is to pass a LIHEAP bill. I hope we can do that.

I yield the floor.

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