Washington, DC—Senate Majority Leader Harry Reid made the following statement today on the floor of the U.S. Senate regarding the Foreclosure Prevention Act of 2008:
“The sites and signs of America’s housing crisis are all around us: On neighborhood streets dotted with one ‘for-sale’ sign after another. In the struggles of construction workers who can’t find jobs. In the desperation of hard working people talked into bad mortgages and now seeing their homes slip away.
“Every day, new statistics illuminate the depth of this growing crisis. Just yesterday, the Associated Press reported that the number of homes facing foreclosure across our country jumped 57 percent in January, compared to a year ago. We also now know that sales prices lost 9 percent in the final quarter of 2007, marking the steepest drop in the 20 year history of the Standard and Poor’s housing index.
“The crisis in Nevada has grown even deeper. Last month, we saw the rate of foreclosure rise 95 percent from the previous year. Late last year, the foreclosure rate in Reno-Sparks jumped 600 percent.
“Who suffers from these foreclosures? The families who own the homes, of course. But they aren’t the only ones. Those who live near foreclosures – families who have done nothing wrong and pay their bills on time – are seeing the values of their property sapped. The Center for Responsible Lending has estimated that 40 million neighboring homes will experience a loss in equity if the expected foreclosures materialize. That could lead to a total decline of more than $200 billion in home equity. This could mean more than $3 billion in loss for Nevada alone.
“That’s not just bad for homeowners, it’s bad for local governments, who have already been forced to cut services as a result of shrinking tax bases. Just one example: Washoe County, Nevada, – the Reno area – is facing $20.6 million cuts to the local budget, mainly due to the housing crisis. These numbers are staggering. But we all know that the housing crisis isn’t just about statistics, it’s about families.
“I met with some of these families at the Mobile Resource Centers I organized in Nevada last fall and again last week. These centers brought borrowers and mortgage servicers together so they could have a conversation about how to help Nevada homeowners facing foreclosure. Of the many people I spoke with, many of whom face extraordinary challenges, the story of a man named Elizardo stands out.
“Elizardo is a Marine veteran of the Iraq War. He is married with three daughters. Like thousands of other heroes, the war took its toll on Elizardo. He suffers from Post Traumatic Stress Disorder and is recovering from many surgeries relating to injuries he sustained in Iraq. As a result of injuries he suffered in service to our country, Elizardo’s family was forced for a time to rely only on the income from his wife’s part-time job. Not surprisingly, they fell behind on their mortgage payments. He called his lender but was told it was his responsibility to pay the loan. Later he was told he should sell the house and get an apartment.
“All across the country, people just like Elizardo look to us for help. In far too many cases, people like Elizardo saw their mortgage payments skyrocket after the interest rate on their loan re-set. The combination of a sudden loss of income combined with a dramatic increase in the monthly payment is lethal for any homeowner. These are the families that this bill would help.
“We are not trying to help speculators who lost a bet. We are not trying to bail out lenders who underwrote mortgages that should not have been made. We are not trying to bail out borrowers who should have known better. We are trying to give families like Elizardo’s a chance to keep their homes. And we are trying to stabilize our nation’s economy in the process.
“The Administration deserves credit for taking some first steps. Treasury Secretary Paulson led the efforts to gather mortgage servicers, investors and housing counselors together to form the HOPE NOW Alliance and Project Lifeline. These efforts should help, but they are voluntary responses that fall short. Some estimate that only 3 percent of at-risk families will be reached under these proposals.
“We need to do more – and the legislation shortly before us does more. It will families keep their homes by increasing pre-foreclosure counseling funds, expanding refinancing opportunities, and amending the bankruptcy code to allow home loans on primary residences to be modified. This legislation will help communities impacted by foreclosures by allowing parts of the country with high foreclosure rates to access federal funds to purchase foreclosed properties for rehabilitation, rent or re-sale.
“The bill will help struggling businesses by making it easier for them to utilize losses incurred in 2006, 2007 and 2008 to offset prior years’ income to recoup previously paid income taxes. And the legislation will help families avoid foreclosure in the future by improving loan disclosures during the original loan and refinancing process.
“These are sensible, targeted solutions. Two provisions in particular – the Title that allows state housing finance agencies to issue bonds for subprime refinancings, and the net-operating-loss tax proposal – have been considered before by the Senate finance committee and enjoyed wide, bipartisan support.
“Title Four of the legislation makes changes to the bankruptcy code. These changes would allow a bankruptcy judge to modify the terms of a mortgage on a primary residence – but only under very limited circumstances. Only families that can pass a strict means test in bankruptcy and are currently struggling with adjustable rate and subprime loans that already exist are eligible for relief. And there are limits to the modifications a judge can make to the interest rate, term and principal amount of the mortgage.
“We do not aim to drive struggling families into bankruptcy with this proposal. No one should abuse the bankruptcy code to get out of debts they owe. The means test provided in the legislation should prevent that from happening. We are also mindful of concerns that this provision could make access to mortgages more difficult by increasing costs, and could inject more uncertainty into the markets. But most independent experts agree that any increase in costs would be minimal, if they occur at all.
“Meanwhile, this modified bankruptcy language could help more than 200,000 families avoid foreclosure. That would stabilize the housing market – and prevent future, perhaps deeper losses to families and investors both if we do not act.
“There may be no perfect solution to the growing housing crisis. But the legislation now before us will make a real difference to homeowners, neighborhoods, and our economy. More than 700,000 families will benefit from the policies in this measure; 80,000 vacant, foreclosed homes will be put back to productive use; 30,000 jobs and $10 billion in economic activity will be created.
“I hope that all of my colleagues will join us to support cloture on the motion to proceed so we can pass this legislation and bring relief to hundreds of thousands of Americans.”