HomeMy WebLinkAbout29-Council Office ORIGINAL
CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION
From: Chas Kelley, Councilmember Subject: RESOLUTION OF THE MAYOR
AND COMMON COUNCIL OF THE CITY
Dept: Council Office OF SAN BERNARDINO SUPPORTING H.R.
5818 AND H.R. 5579 REGARDING
Date: 5/12/08 HOUSING STABILIZATION
M/CC Meeting Date: 5/19/08
Synopsis of Previous Council Action:
5-6-08 -Legislative Review Committee recommended approval.
Recommended Motion:
Adopt Resolution.
Signature VY
Contact person: Chas Kelley Phone: 5188
Supporting data attached: Ward:
FUNDING REQUIREMENTS: Amount: N/A
Source: (Acct. No.)
(Acct. Description)
F,iinnance:
Council Notes:
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I Agenda Item No.
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CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION
Staff Report
Subiect•
Resolution of the Mayor and Common Council of the City of San Bernardino supporting H.R.
5818 AND H.R. 5579 regarding housing stabilization.
BacklZround:
At the May 6, 2008 meeting of the Legislative Review Committee, Councilmember Kelley
brought forward current legislation related to housing stabilization for discussion. Two bills
were specifically discussed H.R. 5818 —Neighborhood Stabilization Act of 2008 and H.R. 5579
— Emergency Mortgage Loan Modification Act of 2008. Both bills are part of a comprehensive
package of housing legislation.
Committee members voted 2-1 (Johnson abstained) to recommend support of H.R. 5818 and
H.R. 5579 (attached) to the full Council. Attached is a report from Innovative Federal
Strategies, the City's Federal lobbyist, which provides detailed information on the two bills.
Additionally, the members from LaRouchePAC were in attendance at the May 6t" meeting
wishing to present their own legislation regarding the housing crisis. The resolution they
presented at the meeting is also attached for your review.
Financial Impact:
None.
Recommendation:
Adopt Resolution.
Attachments:
➢ Resolution supporting H.R. 5818 AND H.R. 5579
➢ Report from Innovative Federal Strategies
➢ H.R. 5818
➢ H.R. 5579
➢ Draft Resolution from LaRouchePAC
' COPY
1 RESOLUTION_NO.
2 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO SUPPORTING H.R. 5818 AND H.R. 5579 REGARDING HOUSING
3 STABILIZATION
4
5 BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE
CITY OF SAN BERNARDINO AS FOLLOWS:
6
7 WHEREAS, homeownership is the foundation for stable and healthy communities; and
8 WHEREAS, when more citizens own their homes, communities and the local economy are
strengthened as homeowners make purchases for their homes and pay property taxes; and
9
WHEREAS, the San Bernardino/Riverside area is.among the top areas in the nation with the
10 highest foreclosure rate; and
11 WHEREAS, foreclosures lead to the detriment of healthy neighborhoods; and
12
WHEREAS, H.R. 5818 and H.R. 5579 are two bills aimed at mitigating the home foreclosure
13 crisis.
14 NOW, THEREFORE, BE IT RESOLVED by the City of San Bernardino that we hereby
15 support the passage of H.R. 5818 - Neighborhood Stabilization Act of 2008 and H.R. 5579
Emergency Mortgage Loan Modification Act of 2008 in an effort to increase the stabilization
16 of housing.
17
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20
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1 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
BERNARDINO SUPPORTING H.R. 5818 AND H.R. 5579 REGARDING HOUSING
2 STABILIZATION
3 I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor
4 and Common Council of the City of San Bernardino at a
5 meeting thereof, held on the day of , 2008, by the following
6
vote, to wit:
7
8 Council Members: AYES NAYS ABSTAIN ABSENT
9 ESTRADA
10 BAXTER
11 BRINKER
12 DERRY
13
KELLEY
14
JOHNSON
15
16 MCCAMMACK
17
18 Rachel G. Clark, City Clerk
19 The foregoing resolution is hereby approved this day of
20 2008.
21
22 Patrick J. Morris, Mayor
23 Ap oved as to Form: City of San Bernardino
24
25 es F. Penman, City Attorney
2
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Innovative Federal Strategies.,
iComprelicnsive Govemment Relations
1
MEMORANDUM
To: Fred Wilson, Teri Baker and Lori Sassoon
City of San Bernardino
From: Letitia White, Alex Shockey and Amanda King
Date: May 13, 2008
Re: Housing Legislative Update
At your request, this report will detail H.R. 5818 and H.R. 5579, two housing related bills, for
review by the Council.
The first bill, H.R. 5818, the Neighborhood Stabilization Act of 2008, was introduced by
Congresswoman Maxine Waters (D-CA). It passed the House 239-188 last week (5/8/08) and is
now pending in the Senate. The White House has threatened to veto the bill should it come to
the President.
H.R. 5818 authorizes the Secretary of Housing and Urban Development (HUD) to make $7.5
billion in grants and $7.5 billion in loans available to States with qualified plans to carry out
housing stimulus activities.
Qualified Plans: States must submit a plan to the Secretary that details their strategy for
stimulating the housing market, including prioritizing the allocation of funds to low- and
moderate- income neighborhoods with high foreclosure rates and providing preferences for
activities that serve the lowest income families and preferences for grant and loan amounts for
the acquisition of foreclosed properties. The Secretary must inform states within 30-days of
submission whether their plans are approved or disapproved. If the Secretary fails to inform
states within 30-days, the plan is considered approved.
Eligible Housing Stimulus Activities: The bill allows loans to be used to finance the purchase of
foreclosed housing for resale or rental and to rehabilitate foreclosed housing for the purpose of
resale. Grants can be used only for holding and operating foreclosed housing, costs related to
property acquisition, administrative costs, planning costs, housing rehabilitation, and for the
demolition of unsafe or deteriorated foreclosed housing.
Loan Program: The Secretary is authorized to make zero-interest, non-recourse loans to states,
counties, and cities. The bill also allows loan recipients to be eligible for repeat loans if the entity
has repaid at least 90 percent of its original loan amount. In addition, the loan program sunsets
48-months after the enactment of this legislation.
Suite 800.525 Ninth Street,NW 9 Washington, DC 20004 9 202-347-5990.Fax 202-347-5941
Innovative Federal Strategies LLC
Grant Program: The Secretary is authorized to make grants to help states cover the cost of
purchasing foreclosed properties. Grants are expressly prohibited from being used for political
activities, advocacy, lobbying, counseling services, travel expenses, and preparing or providing
advice for tax returns.
Public Housing: The bill prohibits the demolition of public housing units.
Support: The National Governors Association, the U.S. Conference of Mayors, National
Association of Counties, National Association of Local Housing Finance Agencies, and the
National Council of State Housing Agencies all support the stimulus that this legislation would
provide. H.R. 5818 is also endorsed by a wide range of civil rights, community development,
labor, and low income housing groups, including the AFL-CIO, AFSCME, Catholic Charities,
Habitat for Humanity, the NAACP, the National Urban League, the National Low Income
Housing Coalition, and 17 national organizations comprising the National Foreclosure
Prevention and Neighborhood Stabilization Task Force.
In a press release, Congresswoman Waters said the following about her legislation, "To
understand the urgent need to enact this legislation, you just need to visit—as I have—
communities like Cleveland, Detroit, or the San Bernardino and Stockton metropolitan areas in
California, where block after block is dotted by foreclosed properties, many of them suffering
from neglect or actual vandalism. These abandoned and foreclosed properties drag down the
value of the homes still occupied by working families, contribute to a cascade effect whereby
plummeting home prices erode the tax base of state and local governments and harm real estate
related industries such as the construction trades."
H.R. 5579, the Emergency Mortgage Loan Modification Act of 2008, was introduced by
Congressman Michael Castle (R-DE). H.R. 5579 passed the House of Representatives 266-154
last week (5/8/08) as part of an amendment to a larger housing package called H.R. 3221, the
American Housing Rescue and Foreclosure Prevention Act. H.R. 3221 is now moving to
conference committee with the Senate-passed housing stimulus bill. While many parts of H.R.
3221 do enjoy bi-partisan support, the President has threatened to veto the legislation.
H.R. 5579 establishes a standard for loan modifications or workout plans for pools of certain
residential mortgage loans. It would protect mortgage servicers from legal liability if they
perform loan modifications according to specific criteria established under the legislation. The
Congressional Budget Office estimates that enacting this legislation would have no significant
impact on the federal budget and would not affect direct spending or revenues.
Residential mortgages are often pooled together and sold to investors as securities. The pools of
loans are overseen by mortgage servicers, who have a fiduciary responsibility to maximize
returns to the investors. Many pooling and servicing agreements give servicers authority to
modify the terms of securitized loans if that action is in the interest of maximizing the value of
the loan pool, but some agreements are more restrictive. Pooling and servicing agreements can
be amended with the consent of investors. However, not all investors in mortgage-backed
securities share losses equally, which may limit servicers' ability to obtain permission to modify
Innovative Federal Strategies LL
the terms of loans to ensure maximum value for all investors. H.R. 5579 would provide legal
protection for servicers of mortgage pools when they modify mortgages.
servicer Duty of Care: The servicer duty provisions are intended to provide a measure of clarity
and certainty to servicers by codifying concepts that are consistent with existing contractual
obligations. The legislation snakes clear that, absent any contractual provisions to the contrary,
the duty of the servicer to maximize, or not adversely affect, the recovery of proceeds from
pooled mortgage loans is owed for the benefit of investors in the aggregate, and not to any
individual investor or group of investors. This clarification is intended to reduce servicer
concerns about liability to investors in securitization tranches that may be disadvantaged by a
servicer's loss mitigation actions.
The legislation also clarifies that, absent contrary contractual provisions, a servicer is acting in
the best interest of all investors if it implements a modification or workout plan or engages in
other loss mitigation efforts, including accepting a short payment or short sale, for a loan that is
in default or for which default is imminent or reasonably foreseeable, to the extent the servicer
reasonably believes the modification will maximize the net present value to be realized on the
loan, including over that which would be realized through foreclosure. These changes are
intended to clear the way for servicers to initiate long-term sustainable loan modifications that
will be a benefit to all parties.
Safe Harbor: The legislation provides a safe harbor from lawsuits by investors for servicers that
meet their prescribed duties, and enter into 'qualified loan modification or workout plans.'
'Qualified loan modification or workout plan' is defined as a plan that: (1) remains in place for at
least five years. unless the borrower sells the property or refinances the loan during that time; (2)
includes repayment schedules that do not result in negative amortization; and (3) does not require
the borrower to pay additional points and fees. These conditions are intended to result in long-
term, sustainable and affordable mortgage obligations for homeowners and a continued stream of
income for investors. The safe harbor would apply only to owner-occupied residential mortgage -
loans, and only to qualified modifications or workout plans initiated prior to January 1, 2011.
The legislation would provide a safe harbor only from investor lawsuits and only for loan
modification or workout plans having the specified characteristics. The legislation's intent is not
to affect the ability of consumers or borrowers to pursue claims against lenders or servicers for
fraud or for discriminatory or abusive lending practices.
Please feel free to call us with any questions.
I
110TH CONGRESS He Re 5818
2D SESSION
To authorize the Secretary of Housing and Urban Development to make
loans to States to acquire foreclosed housing and to make grants to
States for related costs.
IN THE HOUSE OF REPRESENTATIVES
APRIL, 16, 2008
Ms. WATERS (for herself, Mr. FRANK of Massachusetts, Mrs. MALONEY of
New York, Mr. WATT, Mr. MAHONEY of Florida, Ms. VELAZQTTEZ, Mr.
AL GREEN of Texas, Mr. GUTIERREZ, Mr. LYNCH, Mr. CARSON, Mr.
ELLISON, and Mr. CLAY) introduced the following bill; which was referred
to the Committee on Financial Sen ices
A BILL
To authorize the Secretary of Housing and Urban Develop-
ment to make loans to States to acquire foreclosed hous-
ing and to make grants to States for related costs.
1 Be it enacted by the Senate and House of Representa-
2 tines of the United States of Amm ica in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the "Neighborhood Sta-
5 bilization Act of 2008".
6 SEC. 2. CONGRESSIONAL PURPOSES.
7 The purposes of this Act are-
2
1 (1) to establish a loan and grant program ad-
2 ministered by the Department of Housing and
3 Urban Development to help States purchase and re-
4 habilitate owner-vacated, foreclosed homes with the
5 goal of stabilizing and occupying them as soon as
6 possible, either through resale or rental to qualified
7 families;
s
8 (2) to distribute these loans and grants to areas
9 with the highest foreclosure levels;
10 (3) to provide incentives for States to use the
11 fiends to stabilize as many properties as possible;
12 and
13 (4) to provide housing for low- and moderate-
14 income families, especially those that have lost
15 homes to foreclosure.
16 SEC. 3. LOANS AND GRANTS TO STATES.
17 The Secretary of Housing and Urban Development
18 shall, subject to the availability of amounts under section
19 12, snake grants undcr section 5(a) to qualified States and
20 make loans under section 6 in accordance with the ap-
21 proved plans of qualified States, for use to carry out eligi-
22 ble housing stimulus activities under section 7.
23 SEC.4. QUALIFIED PLAINS.
24 (a) IN GENEKAL.—The Seeretaly may make a grant
25 under this Act only to a State, and may allocate a loan
-HR 5818 1H
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1 authority amount under this Act, only for a State, that
2 has submitted to the Secretary a plan that ineets the re-
3 quirements under this section and has been approved
4 under this section.
5 (b) CONTENTS.—A plan under this section for a
6 State shall-
7 (1) designate a State housing finance agency,
8 or other agency, department, or entity of the State,
9 or any other designee, as the State administrator to
10 act on behalf of the State for purposes of this Act;
11 (2) describe the housing stim-ulus activities
12 under section 7 to be carried out with assistance
13 under this Act for the State by the entities identified
14 pursuant to paragraph (1) of this subsection;
15 (3) describe how such activities will help restore
16 or improve the viability of neighborhoods by pro-
17 viding for purchase or oecupancj, of qualified fore-
18 closed properties as soon as practicable and in a
19 manner that will facilitate repayment of the loans
20 provided under this Act for carrlring out such aetivi-
21 ties;
22 (4) set forth the procedures that the State IV]11
23 use to allocate grant and loan amounts and monitor
24 for compliance with the requirements of section 7;
*HR 5818 IH
4
1 (5) provide that grant and loan amounts pro-
2 vided under this Act for the State will be used only
3 for eligible housing stimulus activities under section
4 7 that are eligible under such section for assistance
5 with grant or loan amounts, as applicable;
6 (6) provide preference for activities that serve
7 the lowest income families, who otherwise meet the
8 income requirements under section 7, for the longest
9 period and homeowners, who otherwise meet such in-
10 come requirements, whose mortgages have been fore-
11 closed;
12 (7) describe any other preferences the State
13 may establish, such as housing for school teachers,
14 veterans, workforce, or homeless persons;
15 (8) provide for obligation and outlay of grant
16 amounts, and for loan commitments and disburse-
17 anent, in accordance with the requirements under
18 section 9; and
19 (9) in the case of any grant or loan amounts,
20 that will be invested -with the possibility of a return
21 on investment, provide for use of any return on such
22 investment only for one or more eligible housing
23 stimulus activities under section 7.
24 (c) SUBMISSION.—
-HR 5818 1FI
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1 (1) IN GENERA,.—The Secretary shall proN ide
2 for States to submit plans under this section to the
3 Secretary and shall establish requirements for the
4 contents and form of such plans. Except in the case
5 of plan resubmitted pursuant to subsection (d)(3),
6 the Secretary may not accept or consider a plan un-
7 less the plan is submitted to the Secretary before the
8 expiration of the 30-day period beginning upon the
9 date of the enactment of this Act.
10 (2) PUBLIC APPROV AL.—A State may not sub-
11 wit a plan to the Secretary unless the plan is ap-
12 proved by the governor of the State after a public
13 hearing on the plan held pursuant to reasonable
14 public notice.
15 (d) REVIEW AND APPROVAL.-
16 (1) TrMING.—The Secretary shall review, and
17 approve or disapprove, each plan submitted or resub-
18 witted pursuant to paragraph (3) in compliance «6th
19 the requirements established under this section be-
20 fore the expiration of the 15-day period beginning
21 upon the submission of the plan. If the Secretary
22 does not approve or disapprove a plan that is sub-
23 rnitted or resubmitted in accordance With the re-
24 quirements under this section before the expiration
25 of such 15-day period and notify the State of such
*HR 5818 rH
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1 approval or disapproval, the plan shall be considered
2 approved for purposes of this section.
3 (2) STANDARD FOR DISAPPROVAL.—The See-
4 retail, may disapprove a plan only if the plan fails
5 to comply with the requirements of this Act.
6 (3) RESUBMISSION.—If the Secretary dis-
7 approves the plan of a State, the Secretary shall
8 submit to the State the reasons for the disapproval,
9 and the State may, during the 15-day period that
10 begins upon notification of such disapproval and the
11 reasons for such disapproval, submit to the See-
12 retail, a revised plan for revieiv and approval in ac-
13 cordance with this subsection.
14 SEC. 5.ALLOCATION OF AMOUNTS.
15 (a) GRA_ TS.—From the total amount made available
16 under section 12(a) for grants under this Act, the Sec-
17 retary shall make a grant to each qualified State in the
18 grant amount determined under subsection (e) of this sec-
19 tion for the qualified State.
20 (b) LOANS.—From the aggregate amount of author-
21 ity for the outstanding principal balance of loans made
22 under this Act pursuant to section 12(b)(1), the Secretary
23 shall allocate such authority for loans under this Act for
24 each qualified State in the loan authority amount deter-
-HR 5818 1H
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1 ruined under subsection (c) of this section for the qualified
2 State.
3 (C) GRANT AMOUNTS AND LOAN AUTHORITY
4 AmOITNTS.—The grant amount or loan authority amount
5 for a qualified State shall be the foreclosure grant share
6 or foreclosure loan share, respectively, for the State deter-
7 mined under subsection (d), as such share is adjusted in
8 accordance with an index established or selected by the
I 9 Secretary to account for differences between qualified
10 States in the median price of single family housing in such
11 States.
12 (d) FORECLOSURE SHARES.—For purposes of this
13 section:
14 (1) GRANT sHAR.E.—The foreclosure grant
15 share for a qualified State shall be the amount that
16 bears the same ratio to the total amount made avail-
17 able under section 12(a) as the number of fore-
18 closures on mortgages for single family housing oc-
19 cuii-ing in such State during the most recently eom-
20 pleted four calendar quarters for which such infor-
21 oration is available, as determined by the Secretary,
22 bears to the aggregate number of such foreclosures
23 occurring in all (lualified States during such cal-
24 endar quarters.
-HR 5818 IH
1 (2) LOAN SHARE.—The foreclosure loan share
2 for a qualified State shall be the amount that hears
3 the same ratio to the aggregate amount of the prin-
4 cipal balance of loans that may be outstanding at
5 any time under this Act pursuant to section 12(b)(1)
6 as the number of foreclosures on mortgages for sin-
7 gle family housing occurring in such State during
8 the most recently completed four calendar quarters
9 for which such information is available, as deter-
10 mined by the Secretaij�, bears to the aggregate num-
11 ber of such foreclosures occurring in all qualified
12 States during such calendar quarters.
13 (e) DISTRIBUTION OF FULL A-moUNT.—The Sec-
14 retaly shall establish the index referred to in subsection
15 (c) and the grant and loan authority amounts for the
16 qualified States in a manner that provides that-
17 (1) the aggregate of the grant amounts for all
18 qualified States is equal to the total amount made
19 available under section 12(a); and
20 (2) the aggregate of the loan authority amounts
21 for all qualified States is equal to the aggregate
22 amount of authority for the outstanding principal
23 balance of all loans made under this Act pursuant
24 to section 12(b)(1).
-HR 5818 111
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1 (f) REQUIRE:IIENT TO ALLOCATE TO QUALIFIED
2 METROPOLITAN CITIES.—Of any grant amounts and loan
3 authority amounts allocated pursuant to this section for
4 a State, such State shall allocate for each qualified metro-
5 politan city located in such State a portion of such grant
6 amounts and such loan authority amounts that bears the
7 same ratio to such grant amounts and loan authority
8 amounts, respectively, allocated for the State as the num-
9 ber of foreclosures on mortgages for single family housing
10 occurring in such qualified metropolitan city during the
11 most recently completed four calendar quarters for which
12 such information is available, as determined by the See-
13 rctan7, bears to the a •e ate number of such foreclosures
gg g
14 occurring in the State during such calendar quarters. A
15 State may adjust such allocation to account for differences
16 between median single family housing prices in the State
17 and in qualified metropolitan cities in the State.
18 SEC.G. LOANS.
19 (a) REQUIREMENT OF LOAN AUTHORITY AMOUNT.-
20 The Secretary may make a loan under this Act for use
21 in a qualified State only to the extent and in such amounts
22 that loan authority amounts for such State are available.
23 (b) REVOLVING AvAILABILITY OF LOAN AUTHORITY
24 AMOUNT.—The loan authority amount allocated for each
25 qualified State shall-
-HR 5818 1H
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1 (1) upon the Secretan entering into a binding
2 commitment to make a loan under this Act for use
3 in such State, be decreased ley the amount of the
4 principal obligation of such loan; and
5 (2) upon the repayment to the Secretary 1117 any
6 borrower of any principal amounts borrowed under
7 a loan this Act for use in such State, be increased
8 by the amount of principal repaid.
9 (c) ASSISTED ENTITIES.—The loan authority amount
10 of a qualified State may be used under section 7(a) to
11 provide a loan for the purchase or finance the purchase
12 of qualified foreclosed housing by-
13 (1) the State;
14 (2) a unit of local govermiient or a local govern-
15 mental entity; or
16 (3) a nonprofit organization.
17 (d) LOAN TERMS.—Each loan provided under this
18 Act from the loan authority amount of a qualified State
19 shall-
20 (1) bear no interest;
21 (2) have a term to maturity of-
22 (A) 2 years, in the case of any loan made
23 to purchase or finance the purchase of qualified
24 foreclosed housing for use under section 7(a)(1)
25 for homeommership; and
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I (B) 5 years, in the case of any loan made
2 to purchase or finance the purchase of qualified
3 foreclosed housing for use under section 7(a)(2)
4 for rental;
5 (3) not provide for amortization of the principal
6 obligation of the loan during such term;
7 (4) require payment of the original principal ob-
8 ligation under the loan only upon the expiration of
9 the term of the loan; and
10 (5) have such other terms and conditions as the
11 Secretary may provide.
12 (e) PROCEDURE.—Upon a request, by a State admin-
13 istrator, for a loan under this Act from the loan authority
14 amount of the qualified State for which such adminis-
15 trator acts, the Secretary shall enter into a loan agreement
16 as the Secretary determines appropriate with the borrower
17 under the loan and shall disburse the loan amount in ac-
18 cordance with such terms, subject only to the absence of
19 sufficient loan authority amount for the State.
20 (f) ELIGIBILITY FOR REPEAT LENDING.—A loan
21 under this Act may be made to an entity that has pre-
22 viously borrowed amounts under a loan under this Act
23 only if such entity has repaid 95 percent or more of the
24 amounts due, including principal and interest, under all
25 previous such loans.
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1 (g) SUNSET.—The Secretan- maS- not enter into any
2 commitment to make a loan under this Act, or make any
3 such loan, after the expiration of the 24-month period be-
4 ginning on the date of the enactment of this Act.
5 SEC. 7. ELIGIBLE HOUSING STIMULUS ACTIVITIES.
6 (a) LOAN AMOUNTS.Amounts provided under a
7 loan under this Act for a qualified State shall be used,
8 in accordance with the approved plan of such State, only
9 for the following activities:
10 (1) HOMEOWNERSHIP HOUSING PROVISION.-
11 To purchase or finance the purchase of qualified
12 foreclosed housing for resale as housing for home-
13 ownership to families having incomes that do not ex-
14 teed 140 percent of the median income for the area
15 in which the housing is located.
16 (2) RENTAL HOUSING PROVISION.—To pur-
17 chase or finance the purchase of qualified foreclosed
18 housing for use only as rental housing, subject to
19 the following requirements:
20 (A) QUALIFIED TENANTS.—All dwelling
21 units in the housing purchased or financed
22 using any loan amounts shall be available for
23 rental only by families whose incomes do not
24 exceed 100 percent of the median income for
25 the area in which the housing is located.
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13
1 (B) RENTS.—Rents for each dwelling unit
2 in the housing purchase or financed using any
3 loan amounts shall be established at amounts
4 that do not exceed market rents for comparable
5 dwelling units located in the area in which the
6 housing is located and in accordance with such
7 requirements as the Secretary shall establish to
8 ensure that rents are established in a fair, ob-
9 jective, and arms-length manner.
10 (3) HOUSING REHABILITATION.—To rehabili-
11 tate qualified foreclosed housing acquired with as-
12 sistance provided pursuant to this subsection, to the
13 extent necessary to comply with applicable laws,
14 codes, and other requirements relating to housing
15 safety, quality, and habitability, for the purpose of
16. reselling the housing, to the extent possible, during
17 the 3-month period that begins upon completion of
18 rehabilitation and at a price that is as close as pos-
19 sible to the acquisition price of the housing.
20 (b) GRANT AMOUNTS.—Grant amounts provided
21 under this Act to a qualified State shall be used, in accord-
22 ance with the approved plan of such State, only for the
23 following activities:
24 (1) OPERATING AND HOLDING COSTS.—For
25 costs of holding and operating qualified foreclosed
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14
1 housing acquired pursuant to subsection (a), includ-
2 ing costs of management, taxes, handling, insurance,
3 and other related costs.
4 (2) COSTS RELATING TO PROPERTY ACQUISI-
5 TION.—For costs relating to acquisition of qualified
6 foreclosed housing pursuant to subsection (a), in-
7 eluding reasonable closing costs.
8 (3) ADMINISTRATIVE COSTS.—For adrninistra-
9 tive and planning costs of the State in administering
10 loan authority amounts and grant amounts under
11 this Act, except that the amount of grant amounts
12 provided under this Act to a State that may be used
13 under this paragraph shall not exceed the amount
14 equal to 4 percent of the stun of the grants amounts
15 provided to the State pursuant to section 5(a) and
16 the loan authority amount allocated to the State
17 pursuant to section 5(b).
18 (c) PROHIBITED Uus.—Thc Secretary shall, by reg-
19 ulation, set forth prohibited uses of grant or loan amounts
20 under this Act, which shall include use for-
21 (1) political acth ities;
22 (2) advocacy;
23 (3) lobbying, whether directly or through other
24 parties;
25 (4) counseling ser i iees;
•HR 5818 1A
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1 (5) travel expenses; and
2 (6) preparing or providing advice on tax re-
3 turns.
4 (d) INCOME TARGETING REQL1IREMENT.-
5 (1) VERY LOW-IN COME FAMILIES.—Not less
6 than 50 percent of the total grant amounts a State
7 or qualified metropolitan city makes available under
8 this Act sliall be used for activities under subsection
9 (b) in connection vith providing housing for families
10 whose incomes do not exceed 50 percent of the me-
11 than income for the area in which the housing is lo-
12 cated.
13 (2) EXTREMELY LOW-INCOME FAMILIES.—Not
14 less than 50 percent of the total grant amounts a
15 State or qualified metropolitan city makes available
16 under paragraph (1) shall be used for activities
17 under subsection (b) in connection with providing
18 housing for families whose incomes do not exceed 30
19 percent of the median income for the area in which
20 the housing is located.
21 (3) WAI«R.—The Secretary may waive the re-
22 quirement under paragraph (2) with respect to a
23 State or qualified metropolitan city if such State or
24 city demonstrates to the satisfaction of the Secretary
-HR 5818 IH
16
1 that it has attempted to, but can riot comply with,
2 such requirement.
3 (e) SECURITY.—The Secretary shall retain a lien on
4 any qualified foreclosed housing purchased or financed
5 with a loan under this section in the amount of the prin-
6 cipal obligation tinder the loan and interest due under the
7 loan.
8 (f) QUALIFIED HOMEOWNERS.—This Act may not be
9 construed to prevent the resale of qualified foreclosed
10 housing to a prior owner or occupant of such housing who
11 meets the income requirements of this Act.
12 (g) VOI?CHER NONDISCRIMINATION.—A recipient of
13 amounts from a loan or grant under this Act may not
14 refuse to lease a dwelling unit in housing assisted with
15 any such loan or grant amounts to a holder of a voucher
16 or certificate of eligibility under section 8 of the United
17 States Housing Act of 1937 (42 U.S.C. 1437f) because
18 of the status of the prospective tenant as such a holder.
19 (h) EFFECT OF FORECLOSURE ON PREEXISTING
20 LEASE.-
21 (1) IN GENERAL.—In the case of any fore-
22 closure on any dwelling or residential real property
23 acquired with any amounts made available under
24 this Act, any successor in interest in such property
-HR 5818 IH
17 - -
1 pursuant to the foreclosure shall assuine such inter-
2 est subject to-
3 (A) the provision, by the successor in inter-
4 est, of a notice to vacate to an), bona fide ten-
5 ant at least 90 days before the effective date of
6 the notice to vacate; and
7 (B) the rights of any bona fide tenant, as
8 of the date of such notice of foreclosure---
9 (i) under an., bona fide lease entered
10 into before the notice of foreclosure to oc-
11 cup.)- the premises until the end of the re-
12 i-naining term of the lease or the end of the
13 6-month eriod beginning on the date of
p � g
14 the notice of foreclosure, whichever occurs
15 first, subject to the receipt by the tenant
16 of the 90-day notice under subparagraph
17 (A); or
18 (ii) without a lease or with a lease ter-
19 minable at will under State law, subject to
20 the receipt by the tenant of the 90-day, no-
21 tice under subparagraph (A), except that
22 nothing under this subparagraph shall af-
23 feet the requirements for termination of
24 any federally subsidized tenancy.
•HR 5818 IH
1�
1 (2) BONA FIDE LEASE OR TE\A_\CF.—For pur-
2 poses of this section, a lease or tenancy shall be con-
3 sidered bona fide only if-
4 (A) the mortgagor under the contract is
5 not the tenant;
6 (B) the lease or tenancy was the result of
7 an aims-length transaction; or
8 (C) the lease or tenancy- requires the re-
9 ceipt of rent that is not substantially less than
10 fair market rent for the property.
11 SEC. 8. SHARED APPRECIATION AGREEMENT.
12 Notwithstanding any other provision of this Act, no
13 amounts from a loan or grant, under this Act may be used
14 under section 7 for any qualified foreclosed housing unless
15 such binding agreements are entered into, in accordance
16 m ith such requirements as the Secretaij7 shall establish,
17 that ensure that the Federal Government shall, upon any
18 sale or disposition of the qualified foreclosed housing by
19 the owner who acquires the housing pursuant to assistance
20 under this Act, receive an amount equal to 20 percent of
21 the difference between the net proceeds from such sale or
22 disposition and the cost of such acquisition of the housing
23 pursuant to assistance under this Act, after deductions for
24 expenditures paid or incurred after the date of such acqui-
25 sition that are properly chargeable to capital account
•HR 5818 IH
......�_..__ _____.- Ili.f�`l'�illI�lilliY.YY1•IY.rYPi➢G9YfM Y�yyy..
19
i (mrithin the meaning of section 1016 of the Internal Rev-
2 enue Code of 1986) mrith respect to such housing.
3 SEC. 9. SPENDING REQUIREMENTS.
4 (a) IN GENERAL.—Each qualified State that receives
5 a grant under this Act or is allocated loan authority
6 ainomits under this Act pursuant to section 5(b) shall-
7 (1) commence obligation of such grant amounts
8 and commitment of such loan authority amounts not
9 later than the expiration of the 45-day period that
10 begins upon approval of the approved plan of State;
11 (2) obligate all such grant amounts and enter
12 into commitments for all such loan authority
13 amounts not later than the expiration of the 180-day
14 period beginning upon such approval; and
15 (3) except as provided in subsection (b), outlay
16 all such grant amounts and disburse all such loan
17 authority amounts not later than the 12-month pe-
18 rind that begins upon such approval.
19 This subsection shall not apply to loan authority amounts
20 of a qualified State attributable, pursuant to section
21 6(b)(2), to repayment of principal amounts of loans under
22 this Act.
23 (b) EXCEPTION TO SPENDING REQUIREMENT.—If a
24 State in good faith makes a request, in the plan submitted
25 to the Secretary pursuant to section 4 or other•Arise after
-HR 5818 1H
20 -
1 approval of such plan, for extension of the period referred
2 -to in paragraph (1), (2), or (3) of subsection (a) of this
3 section, the Secretary may extend the period for not more
4 than 3 months.
5 SEC. 10. ACCOUNTABILITY.
6 (a) REPORTING.—Each qualified State that receives
7 a grant or allocation of loan authority amount under this
8 Act shall submit a report to the Secretar3-, not later than
9 the expiration of the 12-month period beginning upon the
10 approval of the qualified plan by the Secretary, regarding
11 use of such amounts which shall contain such information
12 as the Secretary shall require.
13 (b) MISUSE OF AMOUNTS.—If the Secretary deter-
14 mines that any amounts from a grant or loan under this
15 Act for a qualified State has been used in a manner that
16 is materially.in violation of this Act, any regulations issued
17 under this Act, or any requirements or conditions under
18 which such amounts were provided, the Secretary shall re-
19 quire the State to reimburse the Treasury of the United
20 States in the amount of any such misused funds.
21 SEC. 11. DEFINITIONS.
22 For purposes of this Act, the following definitions
23 shall apply:
-HR 5818 1H
21
1 (1) APPROVED PI.A'\%—The term "approved
2 plan" means a plan of a State that has been ap-
3 proved pursuant to section 4.
4 (2) COVERED MULTIFAMILY HOUSING.—The
5 term "covered multifamily housing" means a resi-
6 dential structure that—
I
7 (A) consists of 20 or fewer dwelling units;
8 and
9 (B) is predominantly vacant.
10 (3) LOAN AUTHORITY AMOUNT.—The term
11 "loan authority amount" means, with respect to a
12 qualified State, the amount of loan authority avail-
13 able pursuant to section 12(b)(1) that is allocated
14 for the State pursuant to section 5(b), as such
15 amount may be increased or decreased pursuant to
16 section 6(b).
17 (4) NONPROFIT ORGANIZATION.—The term
18 "nonprofit organization" has the meaning given
19 such term in section 104 of the Cranston-Gonzalez
20 National Affordable Housing Act (42 U.S.C.
21 12704).
22 (5) QUALIFIED FORECLOSED HOUSING.—The
23 term "qualified foreclosed housing" means housing
24
that-
-HR 5818 1H
22
1 (A)(i) is single family housing that is not
2 occupied or vacated by an owner, pursuant to
3 foreclosure or assignment of the mortgage on
4 the housing or forfeiture of the housing; or
5 (ii) is covered multifamily housing;
6 (B) is owned by a lender, mortgage com-
7 pany, investor, financial institution, or other
8 such entity, or any government entity, pursuant
9 to foreclosure or assignment of the mortgage on
10 the housing or forfeiture of the housing; and
11 (C) has a purchase price—
12 (i) in the case of single family hous-
13 ing, that does not exceed 90 percent of the
14 average purchase In for single family
15 housing in the area in which the housing
16 is located, as determined by the Secretary.
17 (ii) in the case of covered multifamily
18 housing, that does not exceed the dollar
19 amount limitation, for housing of the ap-
20 plicable size located in the area in which
21 the housing is located, on the amount of a
22 principal obligation of a mortgage eligible
23 for insurance under section 207 of the Na-
24 tional Housing Act (12 U.S.C. 1713), as in
25 effect on the date of the enactment of this
*HR 5818 IH
23
1 Act pursuant to such section 207(c)(3)(A)
2 and section 206A of such Act (12 U.S.C.
3 1712a).
4 (6) QUALIFIED METROPOLITAN CITY.—The
5 term "qualified metropolitan city" means an incor-
6 porated place that is among the 25 most populous
I7 incorporated places in the United States, as deter-
8 mined according to data from the most recent decen-
9 nial census that is published before the date of the
10 enactment of this Act.
11 (7) QUALIFIED STATE.—The term "qualified
12 State" means a State for which there is an approved
13 plan.
14 (8) SECRETARY.—The term "Secretary" means
15 the Secretary of Housing and Urban Development.
16 (9) SINGLE FAMILY HOUSING.—The term "sin-
17 gle family housing" means a residential structure
18 consisting of from one to four dwelling units.
19 (10) STATE.—The term "State" means any
20 State of the United States, the District of Columbia,
21 the Commonwealth of Puerto Rico, the Common-
22 wealth of the Northern Mariana Islands, Guam, the
23 Virgin Islands, American Samoa, and other territory
24 or possession of the United States.
-HR 5818 1H
24
1 (11) STATE ADX1INISTR kTOR.—Tlie terns "State
2 administrator" means the entity of a qualified State
3 that is designated, pursuant to section 4(b)(1), in
4 the approved plan of the State to act for the State
5 for purposes of this Act.
6 SEC. 12. FUNDING.
7 (a) GRANTS.—There is authorized to be appropriated
8 to the Secretary of the Treasury $7,500,000,000 for
9 grants under this Act.
10 (b) DIRECT LoANs.—
11 (1) LOAN COMMITMENT AUTHORITY LIMITA-
12 TION.—Subject only to the availability of sufficient
13 amounts for the costs (as such term is defined in
14 section 502 of the Federal Credit Reform Act of
15 1990 (2 U.S.C. 661x)) of such loans and the ab-
16 sence of qualified requests for loans, the Secretary
17 shall enter into commitments to make loans under
18 this Act, and shall make such loans, in an amount
19 such that the aggregate outstanding principal bal-
20 ance of such loans does not at any time exceed
21 $7,50010001000.
22 (2) AUTHORIZATION OF APPROPRIATIONS FOR
23 COSTS.—There is authorized to be appropriated such
24 sums as may be necessary for costs (as such term
25 is defined in section 502 of the Federal Credit Re-
•HR 5818 1H
25 -
1 form Act of 1990 (2 U.S.C. 661a)) of loans under
2 this Act.
3 SEC. 13. REGULATIONS AND IWLEMENTATION.
4 (a) REGULATIONS.—The Seeretaiy shall issue any
5 regnIations necessary to eari;y out this Act.
i 6 (b) IMPLEMENTATION.—Pending the effectiveness of
7 regulations issued pursuant to subsection (a), the Sec-
8 retary shall take such action as may be necessaiy to imple-
9 ment this Act by notice, guidance, and interim rules.
O
-HR 5818 1H
lu
J
110TH CONGRESS H• Re 5
2D SESSION
To remote an impediment to troubled debt restructuring on the part of
holders of residential mortgage loans, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 11, 2008
Mr. CASTLE (for himself and Mr. KnrJORSIa) introduced the following bill;
which was referred to the Committee on Financial Sm ices
A BILL
To remove an impediment to troubled debt restructuring
on the part of holders of residential mortgage loans,
and for other purposes.
1 Be it enacted by the Sedate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act nlay be cited as the "Emergency Mortgage
5 Loan Modification Act of 2008".
I SEC. 2. SAFE HARBOR FOR QUALIFIED LOAN MODIFICA.
2 TIONS OR WORKOUT PLANS FOR CERTAIN
3 RESIDENTIAL MORTGAGE LOANS.
4 (a) STANDARD FOR LOAN MODIFICATIONS OR WORK-
5 OUT PLAINS.Absent specific contractual provisions to the
6 contrary-
7 (1) the duty to maximize, or to not adversely
8 affect, the recovery of total proceeds from pooled
9 residential mortgage loans is owed by a ser 6cer of
10 such pooled loans to the securitization vehicle for the
11 benefit of all investors and holders of beneficial in-
12 terests in the pooled loans, in the aggregate, and not
13 to any individual party or group of parties; and
14 (2) a servieer of pooled residential mortgage
15 loans shall be deemed to be acting on behalf of the
16 securitization vehicle in the best interest of all inves-
17 tors and holders of beneficial interests in the pooled
18 loans, in the aggregate, if fur a loan that is in pay-
19 ment default under the loan agreement or for which
20 payment default is imminent or reasonably foresce-
21 able, the loan servieer makes reasonable and docu-
22 mented efforts to implement a modification or work-
23 out plan or, if such efforts are unsuccessfiil or such
24 plan would be infeasible, engages in other loss miti-
25 gation, including accepting a short payment or par-
26 tial discharge of principal, or agreeing to a short
•HR 6579 111
I sale of the property, to the extent that the servieer
2 reasonably believes the modification or workout plan
3 or other mitigation actions will maximize the net
4 present value to be realized on the loan over that
5 which would be realized through foreclosure.
6 (b) SAFE HARBOR.Absent specific contractual pro-
7 visions to the contrary, a scivicer of a residential mortgage
8 loan that acts in a manner consistent with the duty set
9 forth in subsection (a), shall not be liable for entering into
10 a qualified loan modification or workout plan, to—
1 l (1) any person, based on that person's owner-
12 ship of a residential mortgage loan or any interest
13 in a pool of residential mortgage loans or in securi-
14 ties that distribute payments out of the principal, in-
15 terest and other payments in loans on the pool;
16 (2) any person who is obligated to make pay-
17 ments determined in reference to any loan or any in-
18 terest referred to in paragraph (1); or
19 (3) any person that insures any loan or any in-
20 terest referred to in paragraph (1) under any law or
21 regulation of the United States or any law or regula-
22 tion of any State or political subdivision of an.-
23 State.
24 (c) Rui,E 014, CONSTRUCTION.—No provision of this
25 section shall be construed as limiting the ability of a
-HR 5579 IH
4
1 seivicer to enter into loan modifications or workout plans
2 otlier than qualified loan modification or workout plans.
3 (d) DEFINITIONS.—For purposes of this section, the
4 following definitions shall apply:
5 (1) QUALIFIED LOAN MODIFICATION OR WORK-
6 OUT PLAN.—The tern "qualified loan modification
7 or workout plan" means a modification or plan
8 that-
9 (A) is scheduled to remain in place until
10 the borrower sells or refinances the property, or
11 for at least 5 ,years from the date of adoption
12 of the plan, whichever is sooner;
13 (B) does not provide for a repayment
14 schedule that results in negative amortization
15 at any time; and
16 (C) does not require the borro,,i,er to pay
17 additional points and fees.
18 (2) RESIDE,NTIAL MORTGAGE LOAN DEFINED.-
19 The term "residential mortgage loam" means a loan
20 that is secured by a lien on an owner-occupied resi-
21 dential dwelling.
22 (3) SECURITIZATION VEHICLE.—The term
23 "securitization vehicle" means a trust, corporation,
24 partnership, limited liability entity, special purpose
,. 25 entity, or other structure that—
•HR 5579 M
5
1 (A) is the issuer, or is created 11• the
2 issuer, of mortgage pass-through certificates,
3 participation certificates, mortgage-backed secu-
4 cities, or other similar securities backed by a
5 pool of assets that includes residential mortgage
6 loans; and
7 (B) holds such loans.
8 (e) EFFECTIVE PERIOD.—This section shall apply
9 only with respect to qualified loan modification or workout
10 plans initiated prior to Januai y 1, 2011.
0
-HR 5579 1H
RESOLUTION OF THE CITY COUNCIL OF SAN BERNARDINO, CALIFORNIA, URGING THE
UNITED STATES CONGRESS TO IMPLEMENT THE HOMEOWNERS AND BANK PROTECTION ACT
OF 2007.
r
ereas, the onrushing financial crisis engulfing home mortgages, debt instruments of all types, and the banking
system of the United States threatens to set off an economic depression worse than the 1930s; and
Whereas, millions of American citizens are threatened with foreclosure and loss of their homes over the upcoming
months, according to studies released by RealtyTrac.com and Moodys Economy.com; and
Whereas, according to RealtyTrac.com's 2008 First Quarter Metropolitan Foreclosure Report, the San
Bemardino/Riverside metropolitan area has the 2nd largest foreclosure rate in the nation, with 37,239 properties with
foreclosure filings, and 1 in every 38 households in this region in some stage of foreclosure during the first.quarter of
the year 2008. This first quarter foreclosure rate is up 39.13% compared to the fourth quarter statistics of 2007, and up
230.81%compared to the first quarter statistics of the year 2007.
Whereas, the hedge funds which spread this financial collapse among markets worldwide, by dominating speculation
in all those markets, are now going bankrupt and demanding government bailout of their securities and derivatives,
and the nominal value of the derivatives based on morgages alone is the size of the combined gross domestic product
of the nations of the world; and
Whereas, this financial crisis is now threatening the integrity of both state and federally chartered banks, as typified
by the run on deposits of Countrywide Financial in California during the month of August; and such a banking
collapse would wipe out the life savings of American citizens, and drastically undermine the economic stability of our
states and cities; and
Whereas, the ongoing economic crisis in the United States, as expressed in the rise in the foreclosure rate in the City
of San Bernardino, is causing increasing economic hardship and suffering to the citizens of our city; and
.ereas, in a similar financial crisis in the 1930s, President Franklin D. Roosevelt intervened to protect banks and
homeowners; for example On April 13d', 1933, he introduced legislation Addressing Congress with a"Declaration of
National Policy,"which stated"That the broad interests of the nation require that special safeguards should be thrown
around home ownership as a guarantee of social and economic stability, and that to protect homeowners from
inequitable liquidation in a time of general distress is a proper concern of the government"; and therefore
Be it Resolved, that the City Council of San Bernardino hereby endorses the Homeowners and Bank Protection Act of
2007, as initiated by economist Lyndon H. LaRouche, Jr. This crisis is such that it requires emergency action that
only the United States Congress has the capability to enact. Congress must move quickly to keep people in their
homes and avert social chaos. This act includes the following provisions:
1. Congress must establish a Federal agency to place the Federal and state chartered banks under protection,
freezing all existing home mortgages for a period of haw ever many months or years are required to adjust the
values to fair prices, and restructure existing mortgages at appropriate interest rates. Further, this action
would also write off all of the speculative debt obligations of mortgage-backed securities, derivatives and other
forms of Ponzi Schemes that have brought the banking system to the point of bankruptcy.
2. During the transitional period, all foreclosures shall be frozen, allowing American families to retain their
homes. Monthly payments, the equivalent of rental payments, shall be made to designated banks,which can
use the funds as collateral for normal lending practices, thus re-capitalizing the banking systems. These
affordable monthly payments will be factored into new mortgages, reflecting the deflating of the housing
bubble, and the establishment of appropriate property valuations, and reduced fixed mortgage interest rates.
is shakeout will take several years to achieve. In the interim period no homeowner shall be evicted from his
aer property, and the Federal and state chartered banks shall be protected, so they can resume their
traditional functions, serving local communities, and facilitating credit for investment in productive industries,
agriculture, infrastructure, etc.
D 'Fro)y\ L_G rn I,, the X14 t- .
3. State governors shall assume the administrative responsibilities for implementing the program, including the
rental assessments to designated banks, with the Federal government providing the necessary credits and
guarantees to assure the successful transition. And therefore,
^° it Further Resolved, that the San Bernardino City Clerk shall forward this resolution to the California
.igressional delegation, the governor of California, the California legislature, and also have it delivered to the
President of the United States for immediate implementation.
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LaRouche: "Stop Faking it,Barney!" http://www.larouchepac.com/node/10650/print
LaRouche: "Stop Faking it, Barney!"
13 May 2008
May 12, 2008 (LPAC)--Upon receiving reports that Democratic Congressman Barney Frank, head of the House Financial
Services Committee, is aggressively blocking the only solution to the dramatic explosion of home foreclosures--LaRouche's
Homeowners and Bank Protection Act--both in the city councils around the country, and in the Congress,Lyndon LaRouche
laid it on the line:
"Stop faking it,Barney!"he said. "Are you being blackmailed?People are dying, Barney. Are you trying to kill people? Cut it
out."
1 Paid for by the Lyndon LaRouche Political Action Committee
P.O.Box 6157,Leesburg,VA 20178,www.1arouc1*pac,com
and Not Authorized by Any Candidate or Candidate's Committee
sor of all financial legislation, is openly claimed by Wall
Street banks.
These,along with Frank's subcommittee chairman Paul
Kanjorski(D-Pa.)and others,have worked to head off any
Congress Converges on Potential introduction of Lyndon LaRouche's Homeowners
and Bank Protection Act (HBPA) in Congress, despite its
Bailouts To Block HBPA being supported by act of more than 80 cities nationwide,
introduced into half the state legislatures in the country,and
recently passed by both Houses in Rhode Island. La-
by Paul Gallagher Rouche's HBPA would put the crisis-wracked chartered
banks of the United States under Federal bankruptcy pro-
Even as it is confronted with the increasingly hyperinfla- tection,which would also compel them to write off the tril-
tionary failure of the attempted bailouts of the banks and lions in toxic securities immediately, making these banks
financial markets by the Federal Reserve, the Democratic capable of conveying Federal credit flows into rebuilding
leadership of the Congress is lunging toward a tax-dollar the collapsing real economy through infrastructure works,
bailout of its own, on top of its already inflationary appe- capital exports,etc.At the same time,HBPA would freeze
tizer, the "bipartisan stimulus."The Wall Street news ser- all mortgages against foreclosure,an action taken by many
vice CNBC frankly described House Financial Services states during the Great Depression and urgently overdue
chairman Barney Frank's (D-Mass.) March 13 version of now.
this "mortgage legislation" as "a mortgage bailout plan By blocking the HBPA, and, at the same time,moving
hatched between Wall Street and Congress,"and attributed to create mortgage-buying bailout funds which, when you
the design of it to Credit Suisse, Citibank, and Bank of read between the lines, are in the hundreds of billions of
America, owner of the notorious Countrywide mortgage Federal dollars, the Congressional leadership is setting a
lender. match to a hyperinflationary blowout like that of hapless
By transparently attempting to commit Federal dollars Weimar Germany in 1923—nor will they succeed in saving
to rescue the "value" of trillions in now-nearly worthless the banks from the shutdown wave now beginning.
securities of the collapsed mortgage bubble—mortgage-
backed securities, collateralized debt obligations, and fi- When Home Prices Plunge by 50%
nancial derivatives—these Congressional Democrats would Even as CNBC was hailing his March 13 scheme as a
join Fed Chairman Ben Bernanke in bringing on a hyperin- bank bailout, Frank continued to claim that it wasn't, as he
flation that will destroy the U.S. economy and the house- has with each of the year-long series of completely unwork-
holds they claim concern for.At the same time, not one of able proposals that have come from his Financial Services
these leading Congressional Democrats—with the single Committee,such as increasing the capital of Fannie Mae and
exception of Democratic Presidential candidate Sen. Hill- Freddie Mac by $150 billion for the same purpose. Frank,
ary Clinton—will support a nationwide freeze of home Dodd,and company insist that they want to legislate taxpayer
foreclosures,necessary to stop social chaos and urban/sub- funds to buy up mortgage loans at "sharply discounted"
urban collapse in many areas. Clinton's 120-day general prices,making those irresponsible mortgage lenders"take a
foreclosure halt has been fought by Wall Street since she haircut"on the original book value of the loan.
called for it in early December, and all of her Democratic But two things have become clear from several compe-
colleagues—not to mention Congressional Republicans— tent surveys of the causes of the millions of home foreclosure
have taken Wall Street's side. proceedings underway,beginning with the one by the states'
All of the recent months'proposals for so-called"mort- attorneys general in February. First, the ineffectiveness of
gage crisis legislation" have now converged on bailout Treasury Secretary Henry Paulson's "HOPE NOW" plan,
schemes from Wall Street's Representative Frank, House and the state-level "mortgage refinancing" and counseling
Speaker Nancy Pelosi's (D-Calif.) other lieutenants, and plans;the foreclosure tsunami has overwhelmed them,with
Senate Banking Committee chairman Christopher Dodd each month's foreclosure actions 50-60%above the already
(D-Conn.),which schemes are becoming increasingly iden- exploding levels of 2007, and actual home seizures rising
tical—Dodd immediately endorsed and adopted Frank's even faster to 80-90,000 per month. Another 1.5 million
March 13 outline,for example. Speaker Pelosi is acting as homes are in the foreclosure mill right now, and 5 million
the virtual puppet of the treasonous synarchist banker Felix homeowners beyond those are delinquent on mortgage pay-
Rohatyn, who dominates her "economics" soirees, and ments,reports the Mortgage Bankers Association.And sec-
whose every idea becomes her legislative priority. Dodd ond, the primary and dominant cause of mass home
was Rohatyn's chosen Presidential candidate and legisla- foreclosures is,not subprime loans or ARM(adjustable rate
tive backer; Frank, Pelosi's designated pointman and cen- mortgage)interest rates adjusting upwards,but the plunging
46 Economics EIR March 21,2008
price of homes, which has probably now passed the 10% are actually worthless pieces of bundled, securitized con-
mark in national average year-to-year decline. The huge sumer debt.The price of"buying those losses"is measured
decade-long consumer debt bubble known as "real estate in orders of magnitude of the rate of inflation and the col-
assets"has collapsed,and homes are now become debt traps lapse of the U.S.dollar.
for many millions of households hit with rapidly rising prices LaRouche has repeatedly denounced this kind of Con-
and losing jobs at the same time. This situation is causing gressional proposal as"buying into the bubble as it's collaps-
even many thousands of homeowners who have already got- ing."
ten"mortgage refinancing"to a supposedly affordable level, This is what the City of London mouthpiece, the Finan-
to default again and enter foreclosure. cial Times,called for—as United States policy,of course—as
Nothing Congress does will, or could, stop that price "nationalization of the losses"in the securities markets,in its
plunge. March 12 editorial.The policy was pushed hard in testimony
As early as November 2007,housing economists such as in front of Frank's committee on March 3 by Mark Zandi,
Robert Shiller of Yale were telling Frank's committee that chief economist for the ratings agency Moody's,who urged
prices were likely to drop at least 20%.As of February 2008, that Congress must establish a "taxpayer-based fund of at
the worst-hit states such as California, Florida, and Nevada least $150 billion to buy mortgage-backed securities," and
had already approximated that big a drop.Now,sober econo- claimed that nothing else but Federal buying could"revive"
mists foresee a 30% or 40% drop, which would leave one- the moribund securities markets. On March 12, the other
third to one-half the 86 million mortgaged households in U.S.-based ratings agency,"Standard and Whores,"ran cover
America owing more on their house than it could be sold for. for what Frank,Dodd,Rohatyn,and Wall Street were doing,
"American System"economist Lyndon LaRouche has,since by issuing a report which claimed,outrageously,that the writ-
first introducing the HBPA last August,forecast that the col- ing off of securities losses by Wall Street banks was now
lapsing debt bubble would pull home prices down further than "essentially finished"!A few days later,Bear Stearns invest-
even the current "worst case" guesses of other economists; ment bank was seen disappearing into a swamp of new losses,
this is why LaRouche's HBPA establishes an open-ended pe- and being thrown a one-month bailout lifeline by the Federal
riod of mortgage freeze and foreclosure ban, until the price Reserve.
collapse has run its course.
This price collapse means that what Dodd,Frank,and the `Too Little,Too Late'
Rohatyn-Pelosi gang call"a haircut for mortgage lenders"is, Frank, Dodd, Rep. Joe Baca, (D-Calif.) and others have
in fact, a dangerously inflationary and potentially massive had the effrontery to call these bailouts "Franklin D. Roos-
bailout for those lenders and the holders of mortgage-backed evelt's policy,"and claim to be reviving FDR's Home Owners
securities, one in which Federal agencies would be"buying Loan Corp. (HOLC)of 1933.It was LaRouche's EIR which
the losses"of the banks in the price plunge.Frank's legislative first introduced the HOLC into the policy debate over the
proposal, for example, would set up the Federal Housing mortgage bubble collapse,a year ago.We made clear that the
Administration(FHA)to guarantee up to$300 billion in new, HOLC was successful in reversing the mass foreclosures of
refinanced mortgages—which means buying the existing,de- the Great Depression, only because FDR had first, in the
faulted mortages,at what he says is"the current market price," March 1933"Bank Holiday,"put the nation's banks through
or 10%below,at most,what the existing mortgage debt was effective bankruptcy reorganization—as LaRouche's HBPA
based on.Dodd,in a Senate bill,also proposes to have a new will do—and because,by 1933,home and farm prices had al-
Federal agency buy $150 billion of these mortgages in the ready been through their years-long collapse,so new govern-
same manner. ment-backed mortgages could be issued.
The bank or lender,promises Frank,would have"no fur- Just a day after Representative Frank unveiled his bailout
ther credit exposure to the borrower" or to the borrower's scheme,Citigroup CEO Robert Rubin called it"too little,too
household's troubles as his home plummets in"value"by an- late,"at a Washington meeting of the Hamilton Project,which
other 30%, 40%, or more. The bank could take the FHA- he was moderating.There is,in fact,no chance of saving those
insured sale proceeds of 85-90%and pay off mortgage secu- U.S.chartered banks which must be preserved for the econo-
rity holders, etc. But the FHA would be exposed to those my to function and recover,by means of this kind of inflation-
losses; and the Government National Mortgage Agency or ary bailout.Their real losses in the collapse of the global debt
Ginnie Mae,which Frank says would stand behind the FHA "asset"bubble are much too huge.
and repurchase those new mortgages,would be"buying those Congress's real job, is to save these banks from them-
losses"with what could easily be many hundreds of billions selves,by putting them—and the Federal Reserve system—
in Federal dollars taxed,borrowed,or newly printed. through a Federal bankruptcy process,which alone will allow
What Frank and Dodd are pleased to call a 10% mort- them to stay open,and to conduit Federal low-interest credits
gage "haircut" for lenders, banks, and mortgage securities for programs to rebuild the economy from a depression col-
holders, is, in fact, a 30% bailout, or much more, of what lapse.
March 21,2008 EIR Economics 47
MMEconomics
Save Housing: Put Financial
System Into Receivership
by John Hoefle
You can hardly look at the news these days without hearing ing to the Mortgage Bankers Association, which noted that
about the U.S.housing crisis.Foreclosures are at an all-time 40% of all foreclosures involved people with prime or sub-
high and the rate is accelerating, home prices are falling all prime mortgages who walk away from their homes before
across the nation, and the number of homeowners who owe their adjustable-rate-mortgage interest rates reset, and an-
more on their homes than they are worth is rising. This is a other 23% involved people who walked away from their
national problem which must be solved. homes after receiving some sort of beneficial loan modifica-
At the same time, however, this housing crisis is being tion.Late payments rose to a 23-year high,with 5.8% of all
used in a heartless and cynical way by the big financial institu- home loans more than 30 days late, a rate not seen since
tions,which are seeking to have themselves bailed out under 1985.
the guise of helping homeowners.Proposals abound in Wash- Nationally,some 29%of all subprime loans were in trou-
ington which are aimed at protecting not the homeowners,but ble at 2007 year-end,as were 35%of all adjustable-rate sub-
the mortgage-holders,and the holders of trillions of dollars of prime loans.Subprime loans accounted for about 13%of the
mortgage-backed and mortgage-related securities. Under all total number of mortgages.Troubles with prime loans are also
the posturing and spin,the American people are being thrown increasing,with 4.5%of all prime mortgages delinquent or in
to the wolves by the bankers,in order to protect the fictitious foreclosure nationally,as were 8.7%of adjustable-rate prime
values of speculative financial paper. mortgages.
To sell their bailout, the financiers constructed a phony The net worth of households fell in the fourth quarter of
story about how the subprime problems developed,painting 2007 for the first time since 2002,decreasing by$533 billion,
themselves as the victims of unscrupulous subprime lenders with housing-related net worth falling by $176 billion, ac-
and greedy home-buyers. They got away with it because a cording to the Federal Reserve. That net loss would have
year ago, when they started pushing this scam, the cracks in been almost three times bigger,had the Fed used the figures
the banking system were not nearly so visible as they are to- from S&P/Case-Shiller instead of those from the Office of
day.The bankers knew,but the public did not,and the bankers Federal Housing Oversight, according to J.P. Morgan
played on that ignorance. Chase.
One year later,the financial markets are in panic,and the The drop in housing prices, combined with the refinanc-
bailout process has begun.If we continue down this road,not ing wave of the past several years,means that as a whole,the
only will the housing crisis worsen,but the economy will ex- amount of equity Americans own in their homes has dropped
plode in a hyperinflationary blowout the likes of which the below 50%,Federal Reserve statistics show.Since about 35%
United States has never experienced. of homeowners own their homes outright and have no mort-
gages,the 65%who do have mortgages owe a lot more than
Housing Meltdown 50%of their homes'value.
Bad, and getting worse, sums up the situation for home- Freddie Mac projects that sales on new and existing homes
owners.Foreclosures rose to a all-time high in 2007,accord- in the United States will probably fall to 5 million this year,
56 Economics EIR March 14,2008
4 +
down a third from the all-time high of 7.5 million in 2005,and the mutual funds, the money market, pension and other in-
even that number reflects increased government bailout activ- vestment vehicles. It was a giant pyramid scheme which
ity, since the private mortgage-backed securities market has was—seemingly—enormously profitable when real estate
collapsed. prices were rising,only to be revealed as an even bigger disas-
While foreclosures get most of the press coverage,the ef- ter when that price-growth peaked.
fects of the housing crisis are also hitting people who are still The homebuyers, far from benefitting from this process,
making their payments.The exorbitant prices for homes in re- instead found themselves paying huge amounts of money to
cent years have put many families in the position of having to the bankers through artificially high mortgage prices. Many
pay far more for housing than they should,and the combina- individuals profitted from this speculative game while it was
tion of high mortgage and rent payments,high gasoline pric- growing, but from a systemic standpoint, and, after the dust
es,and the rising cost of food and other essentials due to the clears, it will be seen as one of the most destructive boon-
falling value of the dollar, has put households in a terrible doggles of all time.
bind.
Crash,and Bail
The Cause To casual observers,the cracks in this system began to ap-
The fact that subprime loans are at the bleeding edge of pear in early 2007,when the banks pulled the plug on the sub-
the housing crisis does not mean that subprime loans were the prime lenders and began to portray themselves as victims.
cause of the housing crisis.For the cause,one has to look at That Summer,the cracks split wide open with the Bear Stea-
the banking system and the creation of the largest speculative ms hedge fund crisis, and the death of the market for mort-
bubble in history. gage-backed securities.As the panic deepened,the market for
Far from being caused by subprime lenders on the periph- other asset-backed securities,such as those backed by credit-
ery of the financial system,the real estate bubble was the cre- card receivables,also seized up.By year's end,the whole se-
ation of Wall Street.The game was to run up real estate values, curitization system had ground to a virtual halt,and the cen-
and use the"wealth"created by the higher valuations as fuel tral banks were pumping liquidity like crazy, keeping the
for the bubble. The debt created by the mortgages was then system on life-support.
used as the basis for the creation of an even larger market in With the new year came the next phase,the banking crisis;
mortgage-backed securities and even more mortgage-related though called a"credit crunch,"the real problem was insol-
securities such as collateralized debt obligations and other vency,among banks with huge amounts of worthless paper on
forms of insanity.As the bubble grew,it required ever larger their books.
amounts of fuel, which in turn, required more, and bigger, Now, things have deteriorated to the point that the talk
mortgages. about the insolvency of the banking system is out in the open,
As housing prices rose,they began to outpace the ability and the Federal government is openly discussing measures
of the population to pay the mortgages,so the banks began to designed to save financial institutions. It is a far cry from a
loosen loan requirements.Over the last few years,with prices year ago, when all the experts were confidently assuring us
so high that buyers were increasingly difficult to find, the that everything was under control,that the damage from the
lenders opened the floodgates, issuing adjustable-rate mort- mortgage sector was containable. Today, the public state-
gages, subprime loans, low-documentation loans, no-docu- ments are even more foolish,and far less confident.Panic is in
mentation loans—basically doing whatever they had to do to the air,as is the toxic smell of a bailout.
keep the mortgage debt flowing. By design, and intent, the Have no illusions about what is happening.The interna-
banking system was selling mortgages to people who could tional banking crowd is doing what it always does in such
not afford them. circumstances, which is to dump as much of the losses as
The idea that this was the fault of the subprime lenders is possible on the public. The bailout schemes before Con-
a myth, for two main reasons.The first is that the subprime gress vary slightly,but all have the goal of having the Fed-
lenders were just middlemen—they originated the loans and eral government, and the U.S.taxpayer, buy the bad paper
then immediately sold them to larger institutions which from the banks, so that the public takes the hit. Given the
would combine them in pools for mortgage-backed securi- enormous amounts involved and the pitiful state of the U.S.
ties.Had the big banks not bought the loans from the origina- physical economy,such a move would not only destroy the
tors,the originators would have quickly run out of capital and economy, but trigger a hyperinflationary collapse of the
ceased to exist. The second reason is that many of the sub- dollar,which would spread worldwide.It is insane,and it is
prime lenders were allied with, or even owned by, big coming, unless we stop it. If you think you have problems
banks. now,just wait. Better still, help LaRouche pass the Home-
This whole business was run by the big commercial and owners and Bank Protection Act and put a stop to the bank-
investment banks from the top down, and they in turn fed a ers' insane wet dream. (See National for news on the
steady stream of mortgage-backed paper into the hedge funds, HBPA.)
March 14,2008 EIR Economics 57