Floor Statement on the Housing and Economic Recovery Act of 2008

Madam President, I am pleased that we are at last moving closer to enactment of much-needed housing legislation.

The foreclosure situation in my state of Michigan continues to be dire. In 2007, there were more than 103,000 foreclosures. And according to the data released recently by RealtyTrac, there were nearly 13,000 Michigan foreclosure filings in May alone, a 25 percent increase from the previous month. That’s one foreclosure filing for every 353 households, which puts our state’s foreclosure rate at the fifth highest in the nation. Nationwide, filings are up nearly 50% compared to this time last year, with one in every 483 U.S. households receiving a foreclosure filing in May.

Sadly, we all know that homeowners facing foreclosure are not the only ones being impacted by this crisis. Property values have plummeted in many areas, due in part to the glut of abandoned and foreclosed homes. Lost property values moreover translate into decreased State and local revenue from property taxes, creating a shortfall in revenues and reducing the budget available for valuable State and local programs and services.

Our nation’s broader economic woes can also be traced back, at least in part, to the foreclosure crisis. There is a long chain of investors, lenders and financial markets relying on American homebuyers to pay what, in many instances, are shaky home loans. Because of the record defaults on these loans, credit remains tight.

Throughout this crisis I have received wise counsel from many experts on foreclosure prevention and housing matters. Earlier this year I hosted a series of roundtable meetings in Michigan communities with leaders from local and state government, as well as organizations who are in the trenches working with families facing foreclosure, to discuss practical ways to help homeowners and protect our economy from further damage. Many of the ideas discussed at those roundtables are included in this legislation. I have also had the benefit of advice from Bernie Glieberman, Chairman of the Board of the Michigan State Housing Development Authority, and member of the board of the Michigan Housing Trust Fund and Harvard University’s Joint Center for Housing Studies policy advisory board. Long before the committees started crafting this housing bill, Bernie brought to my attention the idea of increasing tax-exempt bonding authority to enable state housing agencies to help struggling homeowners acquire more affordable mortgages. I am pleased that this bill will bring this additional bonding authority to fruition. I am confident that the Michigan State Housing Development Authority (MSHDA) and other state housing agencies across the nation will put it to good use. These tax-exempt bonds will help agencies like MSHDA raise the funds needed to refinance homeowners from adjustable rate mortgages into affordable fixed-rate mortgages, as well as provide loans for first-time homebuyers and finance the construction of multi-family residential housing.

This bill has a number of other provisions that will help alleviate the suffering caused by the foreclosure crisis. Arguably the most important provision in this bill is the “HOPE for Homeowners” program, which will enable the Federal Housing Administration to provide groundbreaking new refinancing options to distressed borrowers. Through this temporary new program, the Federal Housing Administration (FHA) is authorized to insure up to $300 billion in 30-year, fixed-rate mortgages. I applaud the work of Senator Dodd and others of our colleagues in putting this FHA refinancing proposal together. It is based on the successful Home Owner’s Loan Corporation that was implemented by President Franklin Roosevelt during the Great Depression to issue new loans to help homeowners in default.

It is important to note that this new program is not an investor or lender bailout. FHA will only insure loans at 90% of the current property value, which in most cases is significantly less than the original loan amount. Investors and lenders who choose to take advantage of this program must, therefore, be willing to take a hit. They will likely be willing to take this loss, however, because it will be less than the losses associated with foreclosure. Also, this is hardly a windfall for distressed borrowers, as some are claiming; those who sign up for the FHA insured loans will share their new equity and future appreciation with FHA by paying a premium (3% initially, 1.5% annually thereafter) for the FHA loan. They are also required to give a portion of the equity from sale proceeds for this home back to FHA. I am pleased to note that this program, which is estimated to help nearly 400,000 homeowners nationwide, will not cost taxpayers money; in fact, it is expected to net $250 million.

Not only does this bill take significant steps to help keep families in their homes, it provides immediate help toward rehabilitating blighted neighborhoods. The nearly $4 billion in CDBG-like funding provided through this bill will go to areas of the country with the highest foreclosure rates and number of filings. Michigan stands to receive almost $170 million through this provision, and the funds could be used to restore an estimated 6,000 properties. Inclusion of these neighborhood stabilization funds will help protect more homeowners from going “underwater,” and I urge Members in the House to support keeping this provision in the final bill.

Our economic crisis is exacerbated further by the fact that we are a nation at war. Our brave and dedicated soldiers should not have to return to U.S. soil to find that, facing foreclosure action, they no longer have a home. I am pleased that this bill will delay foreclosure action for returning soldiers and also provide them one year of relief from increases in mortgage rates. The bill also provides additional homeownership opportunities for veterans through increases in the VA loan guarantee amount. There is also funding for home modifications for veterans with service-related disabilities.

In addition to the provisions in this bill that help alleviate the suffering of the many families in dire straits, this legislation will help stimulate the slumping housing market and help to ease the broader economic slowdown. One key provision of this bill is a one-year, $8,000 tax credit available for first-time homebuyers. The homebuyer would repay the money over time, similar to an interest-free loan. I have heard from realtors, prospective buyers, home builders and many others who believe this would help reduce the existing stock of vacant housing.

The availability of quality, affordable housing is critical to the economic health of America. This legislation would help create additional affordable rental housing and increased homeownership opportunities for low-income families by creating a new Housing Trust Fund and a Capital Magnet Fund. These funds, which would be provided as grants to states, would greatly help those who need it most because the funds are required to be used primarily for the benefit of low-income families. The bill also provides incentives to spur development of affordable housing property by the private sector through increases to current programs such as the Low Income Housing Tax Credit.

It is not enough to simply alleviate the nation’s present suffering and get us back on track for the time being. Congress has a responsibility to do what it can to ensure that a housing crisis of this sort does not happen again. To that end, this bill contains a number of provisions aimed at helping homeowners avoid foreclosure and reforming major federal players in the housing market: the Federal Housing Administration and the housing government-sponsored enterprises, including Fannie Mae and Freddie Mac.

As I observed during the roundtable discussions I hosted in Michigan, many counselors are doing good work on the ground to try and help families avoid foreclosure. However, foreclosure prevention counselors are overwhelmed, and a lack of funds is tying the hands of local groups trying to help keep families on track. This bill would provide $150 million for pre-foreclosure counseling and $30 million for legal services to help keep people in their homes.

This bill also establishes a new, independent regulator for the housing Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. Through capital standards, audits and other internal controls, this regulator will oversee the safety and soundness of these financial giants who play such a key role in our housing markets.

I am pleased that this bill also incorporates long-awaited legislation to modernize and expand the Federal Housing Administration. These reforms will help provide access to homeownership to families in higher cost areas who have not been able to take advantage of the FHA program in the past by raising the FHA loan limit. It will also provide counseling for first-time homebuyers as well as homeowners who are having trouble making their mortgage payments through FHA, and improve the FHA loss mitigation process to help struggling homeowners stay in their homes.

Finally, many blame predatory lending practices, at least in part, for the excessive number of irresponsible loans made to subprime borrowers. In response, this bill amends the Truth in Lending Act (TILA) to, among other things, require that borrowers be informed of the maximum monthly payments possible under their loan, and ensure full disclosures are provided no later than 7 days before closing so borrowers can shop for another loan if they are dissatisfied with the terms. In order to discourage unscrupulous behavior, statutory damages for TILA violations have been increased 10-fold, from current rates of $200 and $400 to $2000 and $4000, respectively.

I support this comprehensive housing legislation, and am confident that, once enacted, it will provide much-needed relief to many struggling homeowners in Michigan and across the country. Addressing the foreclosure crisis will require a team effort among Federal, State, and local governments, community and neighborhood organizations, and lenders, brokers, and borrowers. This bill recognizes that fact. It provides an opportunity to help keep struggling families in their homes. It provides an opportunity to help restore our housing markets by keeping declining property values stable. It will protect neighborhoods from a glut of vacant homes. I will continue to work with my colleagues to get this bill passed, and, if need be, to overcome a presidential veto. This legislation cannot come too soon.

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