Thursday, June 19, 2008

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on the American Housing Rescue and Foreclosure Prevention Act of 2008
Remarks as Delivered on the Senate Floor

Madam President, I rise, first of all, to commend Senator Dodd, Senator Shelby, Senator Grassley, and Senator Baucus on a piece of legislation that is important, and which I will vote for.

I am going to talk for a few minutes about some suggestions for the managers of this bill to think about as we get toward a final managers' amendment at the end of this debate because there are a couple technical changes that could make a significant difference.

But, first of all, I want to make sure one thing is said. We hear a lot about bailing out lenders and lenders being bad guys. Let me tell you something. The people who originated these loans loaned money that was raised on Wall Street by investment bankers and underwritten by Moody's and Standard & Poors. Moody's and Standard & Poors underwrote securities that were bought around the world by investors, that paid a high dividend but were on very risky subprime credit. That is where the fault lies--Moody's and Standard & Poors and on the investment banking community.

As a parenthetical suggestion, I hope Wall Street is listening because what is happening in the commodities market is the same guys doing the same thing again. If you look at the rapid price of all commodities, they are going up because of a huge influx in the commodities market. The only position-limited people in the commodities market are investment bankers. They are creating paper and they are trading paper and they are getting the Yale endowment fund, the Princeton endowment fund, and teachers' pension funds going into these as if they are investments, and they are not investments. They are a hedge in commodities.

So that is just a little early warning shot. If we will look closely at this, I think we can find the culprit to the subprime may actually be a significant contributor to what is going on in commodities.

But, again, to Senator Dodd, Senator Shelby, Senator Baucus, and Senator Grassley, thank you very much for what is basically a fine piece of legislation. I urge you to look at the effective date of the tax credit that is included. As I read the bill, it includes the original dates from 2 months ago, which means the tax credit, when it goes into effect, will end at the end of April next year, which will be less than a year. May and June are the prime buying months in real estate. What we are trying to do is induce a decline in the inventory of houses on the market. I know it was not intended, but I think the managers should take a look at that.

Secondly, I know there is a difference between the House and the Senate with regard to the effective date over the GSE regulator for Freddie and Fannie. One side wants it immediate; one side wants it in 6 months. We do not need to have this bill go down because they cannot get their act together. So I hope they will work to find common ground on the effective date.

On the FHA refinance program--Senator Casey is precisely correct. This is not a bailout for the lenders. This program allows for the refinancing of a troubled subprime loan whose payoff amount is more than the value of the house because of the decline in the marketplace. For it to be refinanced it requires the lender to take the hit between the amount owed and the market value. So the loss the lender is going to have to be recognize in a foreclosure will, in effect, have to be recognized in a refinance, but the homeowner stays in the house and the values in the neighborhood stabilize. We are doing a good job, in my opinion, of putting an end to what is a desperate downward spiraling in the housing market which is affecting the economy because most Americans consider their equity their line of credit for their consumer spending. With that equity vanishing because of increased inventories, increased foreclosures, and increased vacant houses, we have a very big problem.

So I wish to commend Senator Dodd and Senator Shelby. Some of this is technical, but it needs to be said. Freddie Mac and Fannie Mae saved the American housing market in the early 1990s when the savings and loans collapsed. There was no liquidity in America for mortgages. Had we not created those government-sponsored entities and allowed them to securitize mortgage paper and operate to provide the liquidity in the markets, there would be no mortgages for the American people, and we would have a disaster on our hands.

I appreciate the final language addressing two of the three concerns I had with the GSEs. No. 1, I am glad the House and Senate could agree on loan limits for both conforming and nonconforming jumbo loans. If we had not done that, we would have provided liquidity for mortgages that we didn't need to finance or refinance and not enough liquidity for mortgages that are needed in the marketplace, particularly in high-cost areas around the country.

Secondly, I appreciate the provision for the ability of Fannie Mae to portfolio jumbo loans because if they couldn't do that, there would be no liquidity. But I still question whether the language in the bill as it stands now directs more securitization and less portfolio. If you have too much securitization but don't have the opportunity for liquidity to be provided by letting these entities carry that on their balance sheet, then the effect is you say you are doing something, but, in fact, you don't provide liquidity. But I do appreciate very much the managers of the bill making those changes.

Lastly, with regard to the housing tax credit, I appreciate what Senator Grassley said, and I appreciate the kindness of Senator Dodd in the original debate by incorporating in the Senate bill substantially the amendment that I offered on the floor when this bill first came to the Congress. I was around in the real estate business back in 1974 when America had a similar crisis to the one we have today. The Congress of the United States passed a $2,000 tax credit to buyers who bought a standing vacant house in America. Within a year, we absorbed substantially all of the standing inventory in the country and revitalized the housing market, revitalized equities and values, and we came out of what was a very substantial real estate-induced recession.

I would have preferred some of the terms that I had in my amendment over some of the terms that the House changed them to with this tax credit, but it still accomplishes its purpose. It is a tax credit of $8,000 to a first-time homebuyer with income limits of $150,000 for a couple and $75,000 for an individual to go into the marketplace and buy and occupy--not as an investor but to occupy as an owner--standing inventory, new or resale, in the United States of America. That is going to be a big help to put a little fuel and energy and inertia behind a real estate market that is stagnant.

So I thank Senator Dodd, Senator Shelby, Senator Grassley, Senator Baucus, and particularly the Finance Committee staff who were so cooperative in working on this concept. I think we are going to see it prove to make a marked difference. If that end date of April 30 is changed in the final amendment to the end of June of next year, we will incorporate 2 more months where it can have an incentive effect. It would not affect the scoring because the scoring was done as if it was done in a 12-month calendar year.

So to Chairman Dodd and to Ranking Member Shelby and Senator Baucus and Senator Grassley this is a very important piece of legislation. America has a serious problem. This doesn't bail anybody out, but it incentivizes buyers to come back to the marketplace. It provides liquidity to refinance loans that are underwater. It motivates, inspires, and provides liquidity in the marketplace through Freddie and Fannie that does not exist right now. Failure of the Congress to act, in my judgment, is going to cause us to have a protracted and devastating economic decline resting solely on the fact of the decline in the values of homes in America, the increase in the number of foreclosures, and the lack of liquidity in the lending market.

I encourage my colleagues to vote for this legislation. I hope the President will sign it. Again, I thank the Members of the Senate who worked so hard to provide good, substantial legislation to the housing market in the United States of America.