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Barney Frank, D-MA 4th
Mr. FRANK of Massachusetts. Mr. Speaker, I will claim the remaining time on behalf of the Financial Services Committee.
Mr. Speaker, this is a composite package. The President some time ago, a couple of weeks ago, urgently asked the Congress to send him several pieces of legislation, three in particular. One is embodied in the part of the bill that came out of the Ways and Means Committee. [Page: H3288]
Two, in fact, had previously passed the House from our committee, the bill reforming the government sponsored enterprises--and that came out of our committee and on the floor in a form that the administration mostly liked--and the bill to modernize the FHA.
In fact, the Senate then acted on the bill to modernize the FHA. We went into conference, we ran into some difficulty. Not a formal conference, but a conversation. What we have done because, as we know, the Senate is in a situation where procedurally it's often harder for them to act, so we are acting on the basis of a Senate bill.
We are readopting today two of the pieces we already adopted, reforms of Fannie Mae and Freddie Mac and the FHA modernization. I think it ought to be noted that in both cases they are a recognition by the President that the private sector needs to be able to cooperate with public or quasi-public entities to get the job done.
Those who take the philosophy that the market alone is sufficient unto itself, and that public sector intervention will do more harm than good clearly have been repudiated.
The FHA is a government agency. Fannie Mae and Freddie Mac are government creations with both public and private aspects. It is clear that we need both of them if we are to get out of this current crisis in mortgage lending and be able to go forward in a healthy way.
There is one new element today. That is a bill that our committee voted on last week and the week before. We had a markup. It was suggested to us in many ways by some of the regulators. In its essential form it was endorsed last Monday by the Chairman of the Federal Reserve, and we worked closely with his staff. The administration had an objection to one major piece of an auction mechanism. That's the longer part of the bill. What it says is that holders of loans, not the lenders, because the
lenders have unfortunately long since been able to sell off their loans in many cases--and that's part of the problem--if the holders of loans will write down the amount due them in the principal, and if they get to a point below the current value of the home, in many cases these
homes have lost value from when they were first mortgaged, and the borrower can be reasonably expected to repay it, we will broaden the right of the FHA to make a case-by-case determination, provide a guarantee so that can then be financed and resold to the secondary market.
It's entirely voluntary on the part of the lender. The lender will retain the right to foreclose. In many cases we believe that it will pay the lender not to foreclose.
In fact, we have legislation in this package sponsored by the gentleman from Delaware (Mr. Castle) and the gentleman from Pennsylvania (Mr. Kanjorski) that will ensure servicers who are willing to write down the amounts, that they will not be sued if they write down those amounts to a reasonable level. We think that is very helpful. Again, it's voluntary.
We do believe that knowing if you write this down to a reasonable level, accepting your loss, you will be able then to at least get some guarantee of that to help stabilize the situation. But people should understand, there is not $1 of taxpayer money going to writing down that loan. The holders of the loans have to write it down.
Secondly, the borrower can then go to the FHA if the borrower can pay the new loan, but there is no taxpayer money that will go to help pay off that loan. The taxpayer exposure comes in the fact that there are FHA guarantees. If someone gets an FHA guarantee and subsequently fails to make the payments, his or her house is forfeited to the FHA.
We will lose some money on this, we believe. The Congressional Budget Office estimates that half a million foreclosures will be averted by this program, that would otherwise have taken place, at a cost to the taxpayers of $2.4 billion. That means $4,800 for every foreclosure averted.
We are told, well, this is a bailout, and I want to follow on what my colleague from Massachusetts said. We have seen one bailout this year over investors and speculators. It came when the Federal Reserve, actively urged on by the Treasury, bailed out for $30 billion potentially--we don't know what the losses will be--but $30 billion is at risk of what will ultimately be public money, to lenders, to speculators and investors, people who were partners at Bear Stearns.
Now there may have been some confusion yesterday. I tried to avoid it. I am not critical that we are doing that. I am critical of the lack of sensible regulation that led them to be in that position. I think we do have to examine it, and I want to examine it from the standpoint of what we can do that will make it less likely that we will be confronted with that kind of choice, either provide those funds or see serious further economic debilitation.
But for the administration that engineered $30 billion of bailout for the investors and others who did business with Bear Stearns to say that this $2.4 billion cost according to CBO that will avert 500,000 foreclosures is unacceptable as a bailout is as intellectually and morally and economically inconsistent a policy as we have ever seen. It is true, and some of the Republicans have said in a letter to me in the House, that they wanted to question this.
I would note, by the way, we talked about this, I have looked at the letter that was sent to me. I looked again at the letter, and in no case does it say they were opposed to it. People raised questions. Maybe that's an easy way to kind of cover your bases, but my point is not so much those who wrote the letter, it's the administration.
The administration says they're going to veto this bill, that it's a bailout. It is $2.4 billion versus $30 billion at Bear Stearns.
Now, I believe that Secretary Paulson and Chairman Bernanke have been doing the best they can in this situation. I am not critical of what they have done. Chairman Bernanke has been consistent and thinks this is also a reasonable thing to do.
The President, of course, appointed Secretary Paulson and Chairman Bernanke, and for the administration that supported and facilitated the $30 billion for Bear Stearns which went to lenders, went to investors and some of them were speculators--to then object when it's homeowners seems to me to be entirely the reverse of the reality of the situation.
Again, I want to stress, I was asked by 17 Republicans if the committee would have a hearing. My answer was yes, the committee will have a hearing after we have dealt with the current subprime crisis--and that will be soon, that was our priority--and a hearing not simply to say what did you do, because we cannot compel them to undo it--to look at what they did in the Bear Stearns thing in the context of figuring out how we are best able to diminish the likelihood that it will recur.
But we are in a recession, and a major cause of that recession is the subprime crisis. We do not see any alternatives to this bill to trying to work on that.
Yes, we had Hope Now, and then we had FHA Secure. The administration had several policies. They have been closer, in many ways, to us. The differences are not as great as they once were.
But the fundamental here is this, foreclosures are causing, have caused and are causing serious economic problems. Diminishing the number of foreclosures is in the interest--not simply of those who will avert foreclosure--but of people in the neighborhood of the cities in which they are located and the whole economy. That's why we are going forward with this bill.
Mr. Speaker, I reserve the balance of my time.