Wednesday, February 6, 2008

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on Legislation Offering Tax Credit to Homebuyers
Remarks as Delivered on the Senate Floor

I want to deviate from that debate for a second to talk about a headline many of my colleagues read yesterday, and that we are all reading repeatedly around the United States, and that is the rapid increase in the number of houses going into foreclosure. I want to address that in the context of the economic stimulus package and in the context of a possible recessionary tendency in the economy, and also from a historical perspective, in that we have been down this road before, and suggest there is an action the Senate and the Congress could take, and the White House could endorse, that could avoid an awful lot of foreclosures, improve the housing market, reverse the tendencies toward recession, and be a private sector solution to a problem that is going to be a tremendous burden if we don't act.

I understand the short-term surgical benefits of the stimulus that was passed by the House, the other benefits that the Finance Committee passed. We will work ourselves through that in the next few weeks, and shortly thereafter the American people will more than likely be receiving a check of $300 or more with which to infuse some energy into the economy. But while that is going on, these numbers of a 200-percent and 300-percent increase of houses going into foreclosures are going to materialize into houses in foreclosure.

When we get into the second quarter of this year and the middle of the summer, we are going to find ourselves in a difficult situation where the following has happened: a tremendous number of houses foreclosed on, the banks and lenders taking back inventory--and there is a term called REO, real estate owned--and the regulators coming in, looking at their books and telling them to get rid of that inventory. The lenders are going to then write them down, take them to the marketplace with deep discounts, and sell them.

Now what that is going to do to your homeowners Jim Weichert sells to in New Jersey, mine in Georgia Harry Norman sells to, and those from all around the country, is those people who are in houses making payments and they are in good shape, their value is going to plummet because of the number of foreclosures that is flooding the market. What happens is the equity, the difference between their existing mortgage and the value of the house, decreases because the value of the house goes down. If they are like 87 percent of the American people who have an equity line of credit, where they use the equity in their house as a line of credit, if you will, their available credit is going to be squeezed.

You know what is going to happen then? They are going to stop spending. When that happens, we will have the full pressure of the economy in a downward spiral, and it begins to feed upon itself. That is precisely what happened in 1975.

In 1973 and early 1974, there was a great housing boom in the United States, like we have had over most of the last decade. And like what happened over most of the last decade with subprime loans and underwriting, back in 1974, money got awfully loose. Banks made loans with very little underwriting criteria, and we had a plethora of new homes built all over the United States by newfound homebuilders who had a hammer, a pickup truck, and easy credit. We found ourselves at the beginning of 1975 with a 3-year supply of vacant housing on the market in the United States. A viable real estate market is a 6-month supply. So you had six times the volume of houses that would be considered a balanced market, and we went into a deep recessionary spiral.

A Democratic Congress and a Republican President passed a $2,000 tax credit available to any family who purchased a standing vacant house in inventory. The only thing they had to do, other than qualify for their loan, and qualify under good qualifying standards, is they had to occupy the home as their residence. In a 1-year period of time, we absorbed a 2-year supply of housing and returned the housing market to balance and the economy stabilized. Although we had the impacts of the oil embargo, which was causing problems with inflation, the economy returned to a relatively stable time period.

I, along with a number of Members of the Senate, have introduced legislation--Senate bill 2566--which takes that model from 1975 and applies it to our problem in 2008. What it very simply does is, it offers a tax credit of $15,000 for the purchase of any house that falls in the following category: a new house permitted before September 1 of last year that is standing and vacant; a house owned by a lender that was foreclosed on in the last 12 months from an owner occupant; and any house pending foreclosure owned by an owner occupant who is willing to sell. That is where all this inventory that is beginning to flood our market comes from. The tax credit would be available if the purchase was made between March 1 of this year and February 28 of next year. So there is a 1-year window to incentivize those who may be reluctant to go in the marketplace to do so.

The Joint Tax Committee has scored this, and guess what the score is--$9.1 billion over 5 years. Put that in the context of the stimulus package that is before us of $150 billion to $160 billion. It is a relatively small inducement to provide a private sector solution to what is about to become a huge burden to the taxpayers of the United States and this Government.

I come to the floor at this time in hopes that some of our colleagues who have not found an interest in this legislation yet will take a look at it. As the author, it is not original thought. I happened to have been a real estate broker in 1975 trying to hang on and make a living to educate my three children, and I saw my Government come to the rescue of the housing economy through energizing people to go in and purchase houses that were in trouble, rather than bail them out somewhere down the line, and it worked. The cost to the Government was infinitesimal, yet the benefit to the public was astronomical.

I hope, as we finish talking about a surgical, strategic, short-term stimulus to get the consumer buying, which is what we are talking about in terms of either the Senate Finance Committee bill or the House bill, we take a look at what is coming. Because, believe me, in July of this year, if we do nothing, we are going to be dealing with a housing supply in this country bigger than it has ever been, with vacant houses by the thousands in neighborhoods, declining values on the value of housing, and people who are in good shape are not going to be able to either have their equity line of credit work or be able to move their house in the marketplace because of the tremendous inventory available.

History is a great teacher both in terms of things you should never repeat but also in terms of things that work and you should repeat again. I would submit the tax credit to qualified individuals to purchase and occupy a troubled house in this economy is an incentive that worked not only for the betterment of the market but for the betterment of our economy and in the best interest of the United States. Senate bill 2566 is an opportunity for us to join together to do something good and right for the American people.