Welcome Rep. Brad Miller

[Update]
Congressman Miller is with us. He will answer questions in this thread. Technical difficulties caused just a bit of a delay. Thanks Rep. Miller for hanging in there with us.

Long-time friend to BlueNC, Congressman Brad Miller is tentatively scheduled to live blog with us Sunday afternoon at 4:00 p.m. This chat is scheduled to discuss the Helping Families Save Their Homes Act of 2009 or H.R. 1106.

Please join us on Sunday to ask your questions of Congressman Miller. This is a very special treat, especially since the Congressman is still working to ease the bill through the House and Senate with the homeowner protections in place.

Please join me in welcoming Congressman Brad Miller. Leave your questions in this thread.

Congressman Miller's Testimony Before the Judiciary Committee

Chairman Conyers, Ranking Member Smith, members of the Committee, thank you for this opportunity to address pending legislation to empower bankruptcy courts to modify home mortgages, just as bankruptcy courts already can modify every other kind of secured debt. The mortgage industry treats that peculiarity in the law as if it were brought down from Mount Sinai on stone tablets. In fact, it appears to have been just a sloppy
compromise in the Senate in 1978, and that nonsensical quirk in the law is now responsible for much of the paralysis in our nation’s response to the foreclosure crisis.

We are just beginning to see the effects of the foreclosure crisis.

The Census Bureau estimates that 69.2 percent of American families owned their own homes in the second quarter of 2004, and 67.9 percent owned their own homes in the third quarter of 2008. The number will go much, much lower.

Credit Suisse now estimates that 8.1 million families will lose their homes to foreclosure in the next four years, and the number will rise to 10.2 million families if the recession becomes more severe, a frighteningly real possibility.

In 2006, about 2.5 million families were “underwater,” or owed more on their mortgages than their homes were worth. Moody’s now estimates that 12 million homeowners are underwater, and the number will rise to 14.6 million by the fall if home values decline another ten percent, as Moody’s expects.

Homeowners who owe more on their home than their home is worth are stuck. They can’t sell their house and pay off their mortgage, they can’t refinance, and they almost certainly can’t qualify for any other kind of credit. Even homeowners who can make their current monthly payments have no wiggle room if anything goes wrong, if anyone in the family gets seriously ill, or if anyone loses their job, or if they go through a divorce.

Foreclosures are contributing to the decline in home values, the decline in home values is contributing to the foreclosure crisis, and both are contributing to the decline in the economy. Vacant foreclosed homes are stigmatizing neighborhoods and pushing down home values, and priced-to-sell foreclosed homes are flooding real estate markets around the country. Half of the homes on the market in the Bay Area of California are
foreclosures.

Families that lose their homes to foreclosure lose their membership in the middle class, probably forever. Almost all middle-class homeowners are seeing their life’s savings evaporate with the collapse in the value of their home. And a homeowner who has seen his home decline in value by 20 or 30 percent is in no hurry to buy a new car.

If ten million families lose their homes to foreclosure in the next four years, nothing else we do to revive the economy is going to work.

Voluntary modifications are not even touching the problem. Three quarters of the voluntary modifications that industry claims are just payment schedules with no reduction in the principal or interest. Half of the modifications in November were forbearance agreements that allowed the homeowner to catch up back payments, and actually resulted in a higher monthly payment than the original mortgage. If a homeowner defaulted on a lower monthly payment, what are the chances the homeowner can make a higher monthly payment?

Industry has one explanation after another for why there are so few real voluntary modifications, but after a while it all just sounds like “the dog ate my homework.”

One explanation that critics of the financial industry offer is that the industry is facing millions of mortgages in default, but they are paralyzed, consumed by the fear that they are not getting as much as possible out of each borrower in default. One witness today criticizes the legislation before this committee as “one size fits all.” Mr. Chairman, with ten million families facing foreclosure, we can’t afford a lot of elaborate, individualized
tailoring.

We know exactly what will happen in bankruptcy. It will result in predictable, orderly, sensible modifications. The court will limit the amount of debt secured by the home to the value of the home. Any indebtedness that exceeds the value of the collateral is not really secured anyway, and the court would treat that portion of the debt as unsecured. The court would then set a term and an interest rate of prime plus maybe one percent.

Those terms make perfect sense. It is what industry should already be doing voluntarily.

The legislation does not help homeowners who bought too much house. It only helps homeowners who can afford their house but not their mortgage. It does not help speculators. Mortgages on investment properties can already be modified in bankruptcy.

I spent a lot of time and energy a year ago refuting each argument by the financial industry against this legislation. Many of you remember those arguments. They said their lawyers told them the legislation was unconstitutional and would never survive a court challenge. If their lawyers told them that, they need to get some new lawyers.

But a year ago, many members were reluctant to question what the financial industry said. After all, the financial industry made 40 percent of all corporate profits in 2007, so those guys must be really smart.

If you still think that, go home this weekend and ask the people you represent how much credibility they think the financial industry should have with Congress now.

We’ve spent a year and a half on failed efforts to encourage voluntary modifications. We’ve offered industry carrot after carrot. It is time for a stick. This legislation is the stick.

Comments

I am a really big supporter of Rep. Miller

and will be sure to set aside time on Sunday at 4:00 to read what he has to tell us.

This is GREAT!

North Carolina. Turning the South Blue!

Assistance for laid off renters?

what about renters who have lost their jobs? Any help for them?

Enforcement

What's your level of confidence about compliance? By making lenders do something, we'll probably create new slices of the legal and consulting professions to advice them on ways around the deal.

The courts would enforce the new law.

They know how to do it, since they're already doing it for every other kind of secured debt. I am a little worried about their case load, but that's no reason not to change the law.

Will there be a version of the bill

that explains who can benefit from it in understandable terms for the public?

That's been hard.

It's kind of a technical issue, so blowhards like Rick Santelli can call it a "bailout" for "losers" and it's hard to explain what the bill really does. The bill doesn't give a dime of tax dollars to lenders, unlike every other proposal to deal with the crisis, so it's no bailout.

Millions of Americans now owe more money on their homes than their homes are worth. Some should have been more careful about what they signed, and some lived beyond their means, but they were at a huge disadvantage in dealing with lenders, and most are now in trouble because of events beyond their control--serious illness, job loss, divorce.

I do resent paying losers' positions in credit default swaps, however.

I missed most of the live session but

I was going to suggest to Congressman Miller that an easy way to explain the bill might be to describe individual situations where the bill would help and those were it would not; fictional characters and their stories.

What do you all think?

Good idea

Just some scenarios so people can get their arms around what it would look like in real life.

Agree, yesterday when Betsy x-posted at kos

about Foxx, their discussion really helped me understand the situation much better.

Here's your scenario

If you're on the brink of bankruptcy, you are upside down on your mortgage, you didn't commit fraud in applying for your loan and you've notified your mortgage lender that you are declaring bankruptcy, then basically you qualify.



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Vote Democratic! The ass you save may be your own.

Thanks Betsy for setting this up

Like loftT, I can't make too much sense from what I've read.

My question for Representative Miller is how does this compare to plan given by Jack Guttentag in this article
http://www.mtgprofessor.com/A%20-%20Public%20Policy%20Issues/breaking_the_back_of_the_financial_cris...

Thanks

F-One
I never meant to say that the Conservatives are generally stupid. I meant to say that stupid people are generally Conservative. I believe that is so obviously and universally admitted a principle...
John Stuart Mill 1866

F-One

I followed the link and the document/article is fairly long. I'm not sure Rep. Miller has time to read it in order to make a comparison. Maybe we can all do a comparison once Rep. Miller posts his thoughts and his answers to our questions.

Thanks for the link.



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Vote Democratic! The ass you save may be your own.

I saw somewhere

(it may have been IReport on CNN International) that some lenders (Citi?) who had voluntarily stopped pursuing foreclosures are now trying to process as many foreclosures as possible before legislation gets passed and restricts them.

My question(s) for Congressman Miller are: have you seen reports of this, and, if so, is there any way this can be (at least temporarily) halted between now and the passage of this bill?

Up here, Brad!

I didn't know if you saw my questions or not...

I didn't see that, but it may be true.

Foreclosure really doesn't make economic sense for the mortgage holder. They really would be much better off with a sensible modification. The costs of foreclosure are ruinous.

It could also be an effort

by some banks to give Conservative Congressmen fuel to use against government intervention. You know, "The banks were already doing the right thing before Congress tried to interfere."

That might come up on the floor...

Question 1 - among many I have - may not be on the chat

Rep. Miller:

Please explain how this bill will not only assist homeowners, but also stabilize the banks by mitigating damage to their balance sheets, if at all.

Will passage of this bill effectively set a floor on home prices or will it take more legislation/action from other entities to do so?

 

It may help solvent banks.

It may reveal insolvent banks to be insolvent. The continued collapse of home values and the foreclosure crisis are feeding off each other. We won't get control of the collapse of home values until we get control of foreclosures.

If eight to ten million familes really lose their homes to foreclosure in the next four years, as Credit Suisse now predicts, a lot of banks are going under--along with the economy as a whole.

On the other hands, I suspect a lot of banks are slow walking voluntary mortgage modifications because they are insolvent now, and will be required to revise their valuation of modified mortgages as assets.

Can someone ask Rep. Miller

whether he expects Heath Shuler to vote for the bill as currently written?

Probably not.

There was a vote on the rule for consideration of the bill on Thursday, but other votes were postponed. Voting against the rule usually signals opposition to the bill, and Heath voted against the rule.

Did I see somehwere that the

Did I see somehwere that the protections in this bill do not apply to same sex couples?

If this is true, my question to Rep. Miller is

What are you planning on doing to appease same-sex couples who will not benefit from this bill?

Another provision in the bill

The bill has a provision increasing/extending FDIC insurance to $250,000 for a few more years than previously done (through 2015 apparently).

Will the new bank fees instituted in the past few days be enough to sustain this insurance fund?

Will this extended insurance extend to credit unions in your bill as well?

 

That's not really part of my bill...

that was in a separate bill merged into the bankruptcy change in the Rules Committee. But yes, it does raise deposit insurance, including for credit unions.

Who brought the beer?

I'm thirsty.

Seriously, thanks for setting this up, Betsy. Is this the thread for discussion or are you setting up another?

Congressman Miller is going to post

and we will move questions to that thread.

[Edit] Because of technical difficulties we will hold the live-blog on this thread.



***************************
Vote Democratic! The ass you save may be your own.

We'll do it live!

Actually, I'm pretty frustrated that I spent thirty or forty minutes writing an explanation of the bill, and then lost it somehow. But I'll resist showing my frustration, even if it means I don't have the personality to host a show on Fox.

Grace

This is the measure of grace ... grinding through even though the stars of the blogosphere don't line up. You're a good man.

Thanks for doing this. Two days ago I didn't understand this at all. Today I'd give myself a solid B. Your comments on the floor were excellent.

James

Control "C" is our friend.

The worst part is that my staff...

will think I can't do without them.

Hi y'all.

I think they know better

n/t

I owe you a beer

or two.

Thank goodness you don't have the personality to host a show on Fox. I embarrassed enough as it is by some of the folks representing North Carolina in Washington.



***************************
Vote Democratic! The ass you save may be your own.

Ha!

Congressman Miller, how do you stand it when you have to sit across the aisle in the House and listen to someone who is representing your very own state speak such ignorance?

My question has to do with cost of capital

There are a lot of claims out there that this one provision will drive up the cost of capital for all borrowers. Is that true? Cramdown is already available for other luxury and business assets. Has that driven the cost of capital up for all borrowers?



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Vote Democratic! The ass you save may be your own.

The short answer is no.

The talking points by lenders, of course, make that claim, but studies by real economists in peer reviewed academic journals do not support it. But if they started paying attention to the ability of borrowers to pay their loans, how bad would that be?

Every side has its economists

and I suspect they have studies to refute this.

But studies aside, the potential benefits of this action seem to far out-weigh the risk of this particular downside.

The words of George Bernard Shaw:

If all the economists in the world were laid from end-to-end, they still wouldn't reach a conclusion.

But there are plenty of instances where the law has been different in different places at the same time, enough for economists to study, and they say that there is little evidence that the treatment of security interests in bankruptcy makes much difference on the terms and availability of credit.

Thank you for joining us, Congressman.

On Thursday the Republicans who spoke claimed that allowing adjustments on the principal loan amount on home mortgages was rewarding bad behavior. Rep. Virginia Foxx even claimed the homeowners who would benefit had been dishonest when they obtained their loans.

Will this provision reward bad behavior? I thought the banks were responsible for verifying information from borrowers. If borrowers did act in bad faith, will they be able to take advantage of the cramdown in bankruptcy court?



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Vote Democratic! The ass you save may be your own.

Lenders knew the loan applications were make believe.

Almost half of the subprime mortgages in the 2004 to 2006 period, the subprime heyday, were without full income documentation.

I've asked in committee hearings if the Masters of the Universe were really played for fools by middle class homeowners. The answer was that lenders and the boys on Wall Street paid no attention to the financial wherewithal of borrowers, and assumed that homes would continue to appreciate in value so they couldn't lose.

The bankrupcy law already prohibits relief from debts where the borrower lied and the lender believed it. The lenders didn't believe the applications, and gave a big wink and a nod to brokers just to put down whatever on the forms, if they didn't actually say it out loud.

Thanks for clarifying that

It's one thing to hear the lies coming out of Republican mouths, but I hope I don't hear similar statements coming from Dems.



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Vote Democratic! The ass you save may be your own.

It's amazing that you've been hitting the nail on the head

on this issue for so long.

However, is there anything you wish you had done differently to stop this crisis? Is there anything you could have done? Especially when you were in the minority, why didn't anyone listen?

I always wanted to be the avenging cowboy hero—that lone voice in the wilderness, fighting corruption and evil wherever I found it, and standing for freedom, truth and justice. - Bill Hicks

Lenders were saying they were making the American dream,

home ownership, available for Americans who otherwise could never get a conventional, prime mortgage. And the financial services industry grew from five percent of the economy, the gdp, a generation ago to eight or nine percent now. Just a couple of years ago, forty percent of all corporation profits were by the financial services industry.

They were tonning it, and they had control of Congress.

I wish I'd been more persuasive. I wish I'd had a bigger megaphone.

Leads me to another, broader question

Is this way of life sustainable once we get back on track? For years, the American dream has been home and car ownership ... at least since America digested the "Futurama" exhibit at the '39 World's Fair. It's been something marketed to America for four or five generations now as the apogee of middle-class civilization, but as a result of this crisis more people are in danger of losing that dream.

Meanwhile, the fund that built the roads to suburbia will soon dry up. Inner cities are crumbling and mass transit options seem like they're getting the short end of the stick in NC. Assuming we're able to keep American families in homes, where do we go from here? Car manufacturing and home building built the American economy, but is it time to find a new path and engineer a new dream?

I always wanted to be the avenging cowboy hero—that lone voice in the wilderness, fighting corruption and evil wherever I found it, and standing for freedom, truth and justice. - Bill Hicks

Yes, but...

I'm pretty tired of hearing pundits say that the problem is Americans have been living beyond their means. The fact is that middle class Americans have been working hard, the economy has been growing (until the last year or so), and the income of the vast majority of American households have gone down, while almost all the growth in the economy has gone to a handful of Americans, whose contribution to society was often dubious by my lights.

Yes, let's increase the household savings rate in the future (not now, we need Americans to spend to pull out of the recession), but let's also deal with the grotesque income inequality that has developed in the last generation, and especially the last decade.

Amen

I wish there was a way to spur spending among those who are hoarding their cash.

As soon as we hit bottom, early investors will start moving in, forcing the upturn. What they don't understand is that they can define the bottom by their actions now. The combination of fear and greed is immobilizing.

Not saying that Americans are living beyond their means

That's a wholly different debate. But perhaps America as a culture and collection of governments is living beyond its means. Our culture encourages suburban life, as do numerous tax incentives and federal funding programs. But is that the best kind of life, or a life that we can sustain, especially after watching it go so horribly wrong?

Some urban scholars (Dreier, Gillham, some of the new urbanists) think that our lifestyle and the concept of the American dream vis-a-vis suburbia are responsible for the growing inequality gap that (generally) reduces opportunity and increases poverty in our cities. Everyone who can achieve the American dream moves away and leaves the others behind, because its in their best interest. It's not any individual's fault, and I don't blame any honest person who took out a mortgage not knowing that the qualifications had been lowered while the danger had been increased. But as a culture is what we are doing sustainable when government is spending more and more to build roads, not maintaining the infrastructure we already have, and increasing our debt and maintenance costs for the future while depriving us of other options?

Once we get out of this crisis, should future laws encourage development and lending in better neighborhoods?

I always wanted to be the avenging cowboy hero—that lone voice in the wilderness, fighting corruption and evil wherever I found it, and standing for freedom, truth and justice. - Bill Hicks

Addressing only your last point...

because of the constraints of time and of my intellect, yes we should certainly reform lending practices in the future. It is shameful that our nation allowed the mortgages that caused this problem.

How many homes?

I have seen different reports from the media on how many homes are covered with some saying it is just one, others saying its unlimited. What does the real bill have in it?

"Keep the Faith"

All but the first home...

can be modified in bankruptcy already. So John McCain's second, third, fourth, fifth, sixty and seventh home could get protection in bankruptcy court.

The lenders have made demons of "speculators"--anything to shift the blame from them--but investment properties already can be modified.

Thanks

That seems backwards to me, that we have to go through a huge congressional fight taking years and years to get this through for folks who own one home, yet its already the law for people with multiple homes. Its not shocking at all though.

"Keep the Faith"

I read this provision is retroactive

It will not cover future mortages.

Why would we continue to cramdown loan principal on yachts, jets, vacation homes and commercial properties and not do the same for family homes?



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Vote Democratic! The ass you save may be your own.

I hated agreeing to that limitation,

but I did. We have an urgent problem, so I didn't hold out for everything I wanted. But by allowing courts to modify existing mortgages, we can get at the problem with foreclosures, and by not applying the law to new mortgages, there is no plausible argument that the bill will raise interest rates in the future.

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