4/12/2008 — 

MR. REED: Mr. President, Rhode Island currently has the highest foreclosure rate in New England. According to the most recent National Delinquency Survey from the Mortgage Bankers Association, 3.9 percent of all the loans being serviced in the State are in foreclosure. Foreclosure initiations were up 11.8 percent from the previous quarter. As far as subprime adjustable rate mortgage loans, ARMs, are concerned, 8.2 percent of them are in foreclosure, which is up 18.8 percent from last quarter. And we know that a majority of these ARMs have not yet reset and are scheduled to do so sometime during the next year.

Many families' homes are now worth less than their mortgages, giving them no ability to refinance or sell their homes. With the cost of energy, food, health care, education, and other needs at an all time high, they are trapped between a rock and a hard place.

The legislation before us, the Foreclosure Prevention Act of 2008, is a start. I want to thank Senators Dodd and Shelby and their respective staffs for all of their hard work in helping us move forward on this legislation.

I am pleased that the bill contains the provision I authored, from my bill, S. 2153, to amend the Truth-in-Lending Act to improve home loan disclosures. This provision will ensure that consumers are provided with timely and meaningful disclosures in connection with not just home purchase mortgages, but also for loans that refinance a home or provide a home equity line of credit.

The bill requires that disclosures be provided no later than 7 business days prior to closing so borrowers can shop for another loan if not satisfied with the terms. If the terms of the loan change, the consumer must be notified 3 days before closing of the changed terms.

If consumers apply for adjustable rate or variable payment loans there will now be an explicit warning on the one page TILA form that the payments will change, depending on the interest rate, and an estimate of how those payments will change under the terms of the contract based on the current interest rate. The bill also requires a new disclosure that informs borrowers of the maximum monthly payments possible under their loan.

The bill provides a right to waive the early disclosure or requirements if the consumer has a bona fide financial emergency that requires that they close on the loan quickly, and increases the range of statutory damages for TILA violations from the current $200 to $2,000 to $400 to $4,000.

Finally, it requires lenders to include a statement that the consumer is not obligated on the mortgage loan just because they have received the disclosures. This will give consumers the opportunity to truly shop around for the best mortgage terms for the first time ever. They will be able to compare the payments and costs associated with a certain loan product, and decide not to sign on the dotted line if they do not like the basic terms of the loan.

I believe that giving consumers the information they need regarding the maximum payments is critical. Borrowers need to better understand the full financial impact of entering into a particular loan early in the process, and before they actually consummate the loan. They also need to have the chance of backing out of a loan with bad terms before they get to the closing table. I am pleased that my Republican colleagues agreed that improved disclosures are an important part of the process moving forward.

Importantly, FHA modernization legislation has been included in the bill, which will provide more safe, fixed-rate mortgages, a particular help for families who would like to refinance out of more exotic mortgage products. This section of the bill also contains provisions I authored to improve the HUD Post-Purchase Housing Counseling Program. This amendment expands access to HUD-approved counseling programs by allowing any low- or moderate-income homeowner to be eligible for financial counseling services.

Since we know that millions of homeowners are facing resets of their mortgages during the upcoming year, this change, combined with the additional funding that we are providing in this bill for housing counseling, should help at least 250,000 families to get the advice or assistance they need to help keep their home. I believe we need more funding for this, and I will keep advocating for these housing counseling services.

Additionally, the bill contains language that allows $25 million in FHA savings every year to be used for the purpose of improving FHA's technology, processes, and program performance, and for providing appropriate staffing for the FHA mortgage insurance programs. This funding is critical to ensuring the success of FHA modernization since it will allow FHA to access cutting-edge mortgage insurance industry practices and procedures.

The FHA section of the bill also contains some of the provisions that I coauthored with Senator Allard to improve the home equity conversion mortgages, HECM, for seniors.

Other noteworthy provisions include: $10 billion in Federal tax-exempt private activity bond authority that will provide for the refinancing of subprime loans, mortgages for first-time homebuyers, and multifamily rental housing: $4 billion in new community development block grant, CDBG, funding to help communities impacted by foreclosures by allowing localities with high foreclosure rates to purchase foreclosed properties for rehabilitation, rent, or resale; assistance for returning soldiers to avoid foreclosure by lengthening the time a lender must wait before starting foreclosure from three months to nine months after a soldier returns from service and providing returning soldiers with one year relief from increases in mortgage interest rates; the requirement that the Department of Defense establish a counseling program to ensure veterans and active service members can access assistance if facing financial difficulties; and an increase in the VA loan guarantee amount, so that veterans have additional homeownership opportunities.

However, I think that this legislation has failed to deal with the core issue at the center of this crisis--helping struggling families whose homes are now worth less than their mortgage loan--the so-called "underwater mortgages." I think the Durbin amendment, which I cosponsored, would have helped substantially in this regard. To help families save their homes, the Durbin amendment was strictly limited and would have only applied to families that could pass the strict means test in bankruptcy--and therefore could prove that they couldn't afford the current mortgage. It also would have limited the provisions to families that were currently struggling with nontraditional and subprime loans.

Moreover, a judge's authority to change the terms of a mortgage was strictly limited. Judges would have only been able to reduce interest rates to the prime interest rate plus a reasonable premium for risk and could only have extended the life of the loan up to 30 years. In addition, if a family sold their home within 5 years of the court-supervised mortgage change, any increase in the market value of the home up to the original mortgage amount would have been given back to the lender.

There is no credible evidence to support the claim that the mere possibility of a small subset of mortgages being changed in bankruptcy would have somehow raised the cost of all mortgages by 1.5 to 2 percentage points, as some have claimed. In fact, a study released earlier this month concluded that allowing strip downs would have had no impact on the cost of credit at all.

The Senate should have had a straight up or down vote on this amendment, so that we could start the process of helping the families who want to honor their financial obligations get a court-ordered payment plan that will enable them to stay in their homes at no additional cost to taxpayers. However, the minority did not allow that to happen. This was unfortunate, and I believe a mistake. We are going to have to figure out a way to help the housing market deal with all of these underwater mortgages in an efficient and orderly manner.

As the housing crisis deepens, it is clear that its effects are reverberating throughout our entire economy. Indeed, employers shed 80,000 jobs in March, the worst decline in 5 years. In addition, the jobless rate jumped to 5.1 percent from 4.8 percent in February, the highest since September 2005.

Unfortunately, Rhode Island has been hit especially hard in the current economic downturn as the unemployment rate has climbed to 5.8 percent. As I mentioned, families throughout Rhode Island are coping with rising energy, food, health care, and education costs, all while workers are losing their jobs and wages have remained stagnant. T hat is why I spearheaded a letter earlier this year urging the inclusion of an extension of unemployment insurance, UI, benefits in the original stimulus package.

Given that this extension was not included in the package signed into law and the economic situation has since worsened, I believe Congress needs to act now to ensure Americans who have played by the rules and worked hard all of their lives can make ends meet. It is critical that we extend this important program. Doing so would not only stimulate our economy, but help workers who have lost their jobs by providing much-needed and temporary income support. Indeed, economists have found that the extension of UI benefits provides a very high return on the investment, generating approximately $1.64 in gross domestic product per dollar spent.

Although I support the Foreclosure Prevention Act, I hope that we can revisit the Durbin amendment, look more closely at Senator Dodd's proposal to deal with underwater loans, and analyze other remedies that will deal with the heart of this crisis--millions of families trapped in loans that cost more than the value of their homes. If we do not provide an orderly unwinding to this problem, I fear our entire economy is going to be affected for quite some time.