Pelosi: Subprime Crisis Demands Action -- Congress Will Protect Families Who Have Lost Their Homes
"Thank you, Leader Reid. Today, our country faces a challenge that threatens the economic security of our economy and the dream of home ownership for many of America's working families -- the subprime lending crisis."The number of foreclosures reported in August was more than double than the same time one year ago. This past August alone, 240,000 American families faced the heartbreak of losing their home.
"At the same time, our broader housing market is in its worst slump in 16 years. This means fewer jobs and the decline in the value of a family's biggest asset, their home. Foreclosures are not in the best interest of lenders, certainly not in the best interest of the home owner, and not in the interest of their community.
"What does more to stabilize a community than home ownership? Putting down roots and investing in the community around them does just that. The strength of America in terms of the strength of our communities and our families is ill-served by ignoring the subprime crisis -- we are not doing that.
"There's an opportunity for the lending institutions to do much more to help. More than 40 percent of consumers with subprime mortgages are eligible for lower fixed rates. Yet, according to a recent survey of 16 subprime lenders, only 1 percent of consumers experiencing higher interest rates had their mortgages renegotiated.
"The subprime crisis demands action, and we are working to protect families who have lost their homes or are in danger of foreclosure, and to institute reforms to prevent other subprime problems.
"I am very proud of the leadership of Barney Frank, Chair of our Financial Services Committee, Chairwoman Maxine Waters of the Housing and Community Opportunity Subcommittee, and the Vice Chair of the Joint Economic Committee, Congresswoman Carolyn Maloney.
"With that, I'm pleased to yield to the distinguished Chairman of the Senate Banking Committee, a person who has been a champion for America's working families for his entire career, Chairman Chris Dodd."
Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, Congressman Barney Frank, Congresswoman Carolyn, and Senators Chris Dodd, and Charles Schumer also released a letter to President Bush today, urging him to take the steps needed to counter the subprime mortgage crisis. See the text of the letter as well as a fact sheet on the issue:
Letter to President Bush:
October 3, 2007The 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 National Consumer Law Center 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
Senate Majority Leader
Nancy Pelosi
Speaker of the House
Senator Chris Dodd
Congressman Barney Frank
Senator Charles Schumer
Congresswoman Carolyn Maloney
Fact Sheet:
A NEW DIRECTION FOR AMERICAN HOMEOWNERS: RESPONDING TO THE SUBPRIME MORTGAGE CRISISThe 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).