Pelosi and Reid Urge Bush to Take Action to Address 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
President
1600 Pennsylvania Avenue, N.W.
Washington, DC 20510
Dear Mr. President:
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 NationalConsumerLawCenter notes that if these foreclosures go unchecked, the coming crisis could eclipse the number of people displaced by Hurricane Katrina.
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 Nancy Pelosi
Senate Majority Leader Speaker of the House
Senator Chris Dodd Congressman Barney Frank
Senator Charles Schumer Congresswoman Carolyn Maloney * * *
FACT SHEET
October 3, 2007
A NEW DIRECTION FOR AMERICAN HOMEOWNERS: RESPONDING TO THE SUBPRIME MORTGAGE CRISIS
The 110th Congress is taking America in a New Direction, acting to strengthen the housing market and the economy, expand affordable mortgage loan opportunities for families at risk of foreclosure, and strengthen consumer protections against risky loans in the future.
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
Subprime Mortgage Crisis
the American Economy And The American Family
Problems in the subprime mortgage markets have helped push the housing market into its worst slump in 16 years. Sales of existing homes fell in August to a five-year low, new-homes sales tumbled to the lowest level in seven years, inventories of unsold single-family homes rose to an 18-year high, and home prices suffered the biggest drop in nearly 37 years.
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.