Washington, DC—Senate Majority Leader Harry Reid today sent the following letter to President Bush, calling on him to work with Democrats to pass legislation that addresses the mortgage crisis, helps families threatened with foreclosure stay in their homes and strengthens the middle class. The text of the letter is below:
February 27, 2008
The White House
Washington, DC 20500
Dear Mr. President:
On behalf of Senate Democrats, I write to express my disappointment upon learning that your senior advisors recommend that you veto the 2008 Foreclosure Prevention Act and strongly urge you to reject their advice and work with us to enact legislation that will address the housing crisis facing millions of American families.
The U.S. housing market is complex and multifaceted, and the challenge posed by its downturn requires a similarly multifaceted response. While the recently enacted Economic Stimulus Act of 2008 sought to address one aspect of the housing downturn – the liquidity freeze in the secondary mortgage markets – the Foreclosure Prevention Act confronts several additional aspects of this challenge.
The Foreclosure Prevention Act is designed to help keep American families in their homes, prevent a worsening of the disruptive collapse of housing prices, stabilize communities harmed by foreclosures, and help reduce foreclosures in the future.
We understand your advisors specifically expressed concern about Title IV of the bill, which would change federal bankruptcy law to allow judges to modify mortgages on primary residences. Current law allows bankruptcy judges to assist individuals who are unable to fully meet almost any type of obligation – including loans for luxury yachts or vacation homes – yet it prohibits similar assistance for those struggling to stay in their own homes. That makes no sense, particularly during an economic crisis that avoiding foreclosures could help mitigate.
In response to some concerns about this provision, you should know that we have made significant modifications in the version we plan to offer in the Senate later this week that narrow its scope. The revised Title IV would allow judges to modify only subprime and adjustable-rate mortgages that already have been originated and provides creditors the ability to recoup lost mortgage principal after a modification, if and when the debtor resells. These changes were made to target the provision more directly at the loan products most prone to default as well as address concerns that closing the existing loophole for lenders would inject uncertainty into the mortgage markets or make credit less available. We believe this modified provision would keep more than 200,000 families in their homes and potentially prevent future, deeper losses for families and investors down the road. Moreover, analysis by independent economists indicates the effect of this modified provision on mortgage-credit costs or availability will be negligible.
I understand your advisors also expressed concern about the provision in the bill designed to keep families in their homes by providing foreclosure counseling. Your advisors indicated that NeighborWorks, the organization tasked with administering this program, lacks the capacity to handle the funds provided in our bill. Congress appropriated funds for this same purpose late last year and this week NeighborWorks announced it had distributed these monies. Far from appearing overburdened, NeighborWorks completed that process in 60 days and demonstrated their unique ability and capacity to direct additional, needed foreclosure-counseling funds. Furthermore, I saw firsthand the work of housing counseling agencies in my state last week and know that they would be eager to help more Nevada families, which additional resources would allow them to do.
Finally, your advisors expressed concern about a provision to stabilize home prices and neighborhoods by allowing local communities suffering from large numbers of foreclosures to purchase and refurbish these properties. Far from a bailout for lenders and speculators, this money will prevent foreclosed properties from sitting empty and deteriorating, pulling down local communities and local economies in the process. Purchases made by local governments and their partners with these funds will be made at market or liquidation rates. As we know from reports this week, home prices continue to plummet; it is difficult to see how buying foreclosed homes at the existing market rate amounts to a bailout for anyone, including lenders or investors.
While voluntary initiatives advanced by your administration such as HOPE Now and Project Lifeline are worthy efforts, the number of foreclosures continues to rise and ripple throughout our entire economy. I believe the evidence is clear that these initiatives alone will not steer enough families away from foreclosure or our country away from further economic weakening. In my view, the enormity of the foreclosure crisis requires a much more aggressive response.
The Foreclosure Prevention Act contains necessary, targeted and appropriate solutions that together will benefit more than 700,000 families, put 80,000 vacant, foreclosed homes to productive use, and create 30,000 jobs and $10 billion in economic activity in the process. Instead of threats to veto this legislation, we believe most Americans hoped you would work with us and persuade Senate Republicans to allow the Senate to consider it in an orderly and expeditious manner. With your support and the cooperation of Senate Republicans, we can build on the good work we accomplished together with the Economic Stimulus Act of 2008 and deliver badly needed relief to struggling families and communities across America.