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Joint Economic Committee Democrats Chairman - Senator Martin Heinrich (D-NM)

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Oct 25 2007

New JEC Report Reveals: Subprime Crisis to Cost Billions in Family Wealth, Property Values, and Tax Revenues Unless Action is Taken to Prevent Foreclosures

NEW JEC REPORT: SUBPRIME CRISIS TO COST BILLIONS IN FAMILY WEALTH, PROPERTY VALUES, AND TAX REVENUES UNLESS ACTION IS TAKEN TO PREVENT FORECLOSURES
 
Schumer’s Joint Economic Committee Report Estimates 2 Million Subprime Homes Could Go into Foreclosure; Property Values, Personal Wealth, and Tax Revenues Poised for Big Declines
 
JEC Report First of Its Kind to Project Economic Losses on State-by-State Basis from 2007-2009
 
Schumer: Strong Action by Administration Needed to Stave Off Broader Economic Downturn
 
Washington, D.C. – U.S. Senator Charles E. Schumer, Chairman of the Joint Economic Committee (JEC), released a report today analyzing the greater financial impact of the subprime foreclosure boom. The JEC report entitled, “The Subprime Lending Crisis: The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got Here” reveals that families, neighborhood property values, and state and local governments will lose billions of dollars as  two million subprime mortgage homes are foreclosed.  The subprime fallout report argues in favor of foreclosure prevention, which can save the economy billions in housing wealth and ease falling housing prices.  Sen. Schumer was joined by Senators Amy Klobuchar (D-MN), Sherrod Brown (D-OH) and Rep. Carolyn Maloney (D-NY), the Vice Chairman of the Joint Economic Committee.  The JEC report is the first of its kind to project economic costs on a state-by-state basis from the third quarter of 2007 through 2009. 
 
Schumer said, “State by state, the economic costs from the subprime debacle are shockingly high.  From New York to California, we are headed for billions in lost wealth, property values, and tax revenues.  The current tidal wave of foreclosures will soon turn into a tsunami of losses and debt for families and communities.  The administration must act quickly to save financially-strapped families from drowning in this flood of subprime foreclosures.”
 
The JEC report found that the subprime catastrophe is likely to accelerate the downward spiral of house prices.  Based on state-level data, the report estimates that by 2009:

* 2 million foreclosures will occur by the time the riskiest subprime adjustable rate mortgages (ARMs) reset over the course of this year and next.

* Approximately $71 billion in housing wealth will be directly destroyed because each foreclosure reduces the value of a home.

* More than $32 billion dollars in housing wealth will be indirectly destroyed by the spillover effect of foreclosures, which reduce the value of neighboring properties.

* States will lose more than $917 million in property tax revenue as a result of the destruction of housing wealth caused by subprime foreclosures.

* The ten states with the greatest number of estimated foreclosures are California, Florida, Ohio, New York, Michigan, Texas, Illinois, Arizona and Pennsylvania.  But there are several others that are close behind in the rankings.

* On top of the losses due to foreclosures, which this report examines, a 10 percent decline in housing prices would lead to a $2.3 trillion economic loss.

The full report can be found at www.jec.senate.gov. 
 
“American families stand to lose over $100 billion in the value of their homes over the next two years due to subprime foreclosures, and this economic pain will also be felt by neighbors and local economies,” said Maloney.  “This new JEC report is a sobering look at just how much worse things could get, and fast, for American families and the economy. Democrats in Congress are working hard to help families stay in their homes and prevent another crisis like this from happening in the future.” 
 
“In the world of subprime lending, the chickens have come home to roost,” said Klobuchar.  “If we are to contain the economic spillover effect of the subprime lending disaster, we must act now.”
 
“Since January, Ohio foreclosure filings were almost double what they were last year – 100,000 through September. This fall will probably be worse, and next year could be even higher. We need to act, and act now. The problems Ohio is facing are spreading across the country – from New York to Florida to California. We should apply the same attention to Main Street’s problems that we do to Wall Street’s,” said Brown.
 
Nationally, house prices began to decline in 2006 and are now down approximately 3.2 percent from their peak in the second quarter of 2006.  Inventories of unsold new homes have increased, and the monthly supply of new homes has risen.  With housing prices no longer rising, subprime borrowers cannot refinance their homes to pay off loans before they reset to higher and often unaffordable rates.  Loan delinquencies are soon followed by foreclosures.
 
One study on housing values in Philadelphia found that an abandoned property lowered values on homes located within 150 feet of the abandoned property by an average of 10% and lowered values on homes located within 450 feet by an average of 5%.
 
The JEC report outlines several policy proposals to combat additional foreclosures and prevent this crisis from happening again:
 
Foreclosure prevention counseling.  There is a broad consensus that the role of housing counselors as intermediaries between borrowers and lenders/loan servicers is critical in helping prevent foreclosures. Housing counseling agencies across the country are helping struggling borrowers to negotiate safe and affordable loan modifications and refinancings in an effort to prevent foreclosures where possible.  The Senate approved a $100 million appropriation targeted to HUD-approved foreclosure-avoidance nonprofits and $100 million in loss mitigation funding for both nonprofits and private entities.  Nonprofits that specialize in foreclosure prevention have been highly effective in acting on behalf of borrowers to explore their options with their lenders, but they’re inundated and more resources are needed. 
 
Temporarily increase portfolio caps for Fannie Mae and Freddie Mac.  Both of the government sponsored enterprises (GSEs) are currently constrained by portfolio limits imposed upon them by their regulator.  Temporarily raising the GSE portfolio limits so they can focus on subprime ARMs could provide much needed funding to mortgage lenders who will be able to refinance struggling borrowers in safe and sustainable loan products.
 
Increase FHA’s ability to refinance subprime borrowers.  Modernizing the Federal Housing Administration (FHA) would increase their capacity and flexibility to insure subprime mortgages that can be refinanced.  The proposal currently in Congress is designed to make FHA-insured loans a more attractive option to lenders and borrowers by increasing allowable loan limits and lowering down-payment requirements. 
 
Amend the bankruptcy code to protect families from foreclosure.  Bankruptcy could be a highly effective tool for helping families recover from subprime loans, but today’s bankruptcy code prevents courts from providing relief on mortgage loans and many have loans that are greater than the value of their homes, meaning that foreclosure will not extinguish their debts. In fact, federal law singles out the home mortgage loan as the one debt the courts are not permitted to modify.  Amending the bankruptcy code to either temporarily or permanently exclude primary home loans from the remedies that are available on other, less important debts, would allow borrowers to pay the liquidation value of their home and to keep that home, rather than seeing the home sold to a third party for its liquidation value. 
 
Encourage more loan modifications and refinancings. The most effective way to help prevent foreclosures for hybrid ARM borrowers that cannot afford their payments after the rate reset is to modify the terms of their loan to make them affordable.  The federal regulators have issued guidance to lenders and servicers to engage in loss mitigation efforts prior to pursuing foreclosures, and lawmakers must continue to pressure lenders and loan servicers to step up their efforts to help subprime ARM borrowers before their loan resets.  Policymakers may also consider requiring specific loss mitigation efforts prior to any foreclosure filing by creating an affirmative duty for lenders and servicers prior to foreclosure.
 
Waive tax liability on forgiven debt in restructured loans.  Legislation is currently pending in Congress to temporarily change the tax law to let homeowners avoid paying taxes on any forgiven debt in loans being restructured by financial institutions.
 
Reform mortgage lending and ban predatory lending practices.  Predatory lending helped fuel the volume of risky subprime loans and was enabled by a patchwork of federal and state regulations that was all-too-easily evaded by subprime mortgage brokers and lenders.  Federal laws are needed that would offer predatory lending protections to homeowners, restore common sense underwriting practices and ensure a borrower’s ability to pay.  The federal government should require lenders to determine that the borrower has the ability to repay a loan at the fully-indexed rate and assume fully amortized payments. Federal regulation needs to rein in lenders and originators that escape regulatory guidance requiring depository banks and their affiliates to underwrite loans at the fully indexed interest rate. Policymakers should also require lenders to verify a borrower’s income using tax documents or other reasonable documentation.
 
Policymakers may also want to combat predatory lending practices by:

* Requiring mortgage lenders to escrow for taxes and insurance on all mortgage loans.  Failing to escrow for taxes and insurance on a subprime loan is an unfair and deceptive practice that contributes to high rates of foreclosure.

* Eliminating prepayment penalties and yield-spread premiums on subprime loans.

* Regulating mortgage brokers and originators under the existing Truth in Lending Act (TILA) by establishing a fiduciary duty between brokers and their customers, and a duty of good faith and fair dealing standard for all originators.

* Making sure all borrowers understand the terms of their mortgages, requiring that all mortgage lenders disclose the basic facts about the mortgage loan that they underwrite for the borrower. This one page form should be easy to understand and should indicate the amount of the loan, the property’s appraised value, the term of the loan, the payments at each reset date, and today’s estimate of how much the rate will increase (the fully indexed rate), as well as the maximum possible rate on the loan.  Other disclosures would include, in plain language, any prepayment fees and other estimated costs and fees due at closing.

The JEC report also highlights the underlying causes of the subprime mortgage crisis:
 
Unregulated Mortgage Companies:  Most subprime loans are made by companies that specialize in mortgage lending. Because they are not deposit-taking institutions, the independent mortgage companies and bank subsidiaries are not subject to the safety and soundness regulations that govern federal or state banks.  Nor are they subject to other federal regulatory regimes such as the Home Owners’ Equity Protection Act (HOEPA) or the Community Reinvestment Act, leaving the door open for fraud and abuse.
 
Slicing and Dicing of Loans into Mortgage-Backed Securities: The lack of oversight during the lending process is exacerbated by the fact that lenders hold only a fraction of the subprime loans they make in their own portfolios.  Most loans are sold, in whole or in part, to the secondary market, where they become the underlying assets for residential mortgage backed securities. Lenders sell the securities to a wide array of financial players spread throughout the world.  The “slicing and dicing” of the original loans makes it difficult to value them and complicates refinancing.
 
Perverse Incentives for Mortgage Brokers: Lenders, such as Countrywide, sometimes pay brokers so-called “yield-spread premiums,” when they sell loans with interest rates above the minimum acceptable rate for the loan. Some brokers may also receive higher fees for selling mortgages with prepayment penalties.  Moreover, since mortgage brokers bear little or no risk when a borrower defaults, they have no economic incentive to originate loans that a borrower can afford in the long term.  Brokers also lack strong legal incentives to act in the interest of borrowers.  Under state law brokers are not fiduciaries, who must put the interest of their clients first.  Nor do they have a duty to sell their clients products which are at least suitable to their circumstances, as registered securities brokers do.
 
Predatory Lending by Lenders and Brokers: Given the financial incentives for brokers and lenders to provide an increasing volume of high yield mortgages, it is no surprise that tactics were invented to meet the demand. 
 
Common practices included:

* Expansion of 2/28 and 3/27 hybrid adjustable rate mortgages in which mortgages reset to a higher rate after the second or third year, making it more likely that a subprime borrower will need to sell, refinance, or default.

* Imposition of prepayment penalties, which are frequently imposed on all types of subprime loans at a very high relative and absolute rate, have the potential to strip the housing equity from subprime borrowers and increase the likelihood of default

* Rapid rise in “no document” loans that appear affordable even when they are not

* Deliberate targeting of the most vulnerable segments of society, including but not limited to, Hispanics and the elderly.
 
The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.
 
 
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Oct 11 2007

Chairman Schumer: Unsustainably High Trade Deficit Will be a Lasting Legacy of this Administration

Today the Bureau of Labor Statistics (BLS) released its monthly U.S. Import and Export figures that indicate an uptick in U.S. exports, but continue to show unsustainably high trade deficits with many countries.  U.S. Sen. Charles E. Schumer, the Chairman of the Joint Economic Committee released the following statement in reaction to the BLS report:

"While today's report indicating that a boost in U.S. exports has lowered the trade deficit this past month; the bottom line is that our overall trade deficit is unsustainably high and the trade gap with China is at record levels.  Unless the administration reins in soaring budget and widening trade deficits, its lasting legacy will be selling the future of our economy to our trading partners around the world."

Oct 02 2007

Senate and House Democratic Leaders Offer Plan to Stem Tide of Home

SENATE AND HOUSE DEMOCRATIC LEADERS OFFER PLAN TO STEM TIDE OF HOME FORECLOSURES
 

Washington, D.C.—Senate Majority Leader Harry Reid, Speaker Nancy Pelosi, Senators Chris Dodd and Charles E. Schumer, and Reps. Barney Frank and Carolyn Maloney today offered a plan to stem the rising tide of home foreclosures created by the subprime mortgage market crisis.

The House and Senate leaders, along with the Chairs of the Senate Banking, House Financial Services and Joint Economic Committees presented a plan that includes increasing federal funding for foreclosure prevention and temporarily raising the portfolio caps on Fannie Mae and Freddie Mac. The leaders also called on the President to appoint a special advisor to oversee and coordinate the federal government’s response to the subprime meltdown.

The lawmakers urged the administration to act quickly and decisively to help families around the country that were victimized by unscrupulous lending practices to keep their homes, hold lenders accountable and deploy the resources necessary to prevent the foreclosure crisis from taking a toll on the broader economy.

“If we do not act, subprime lending could end up eliminating more homeowners than it created, and the number of Americans foreclosed out of their homes could exceed the number of Americans from the Gulf Coast forced out of their homes by Hurricane Katrina,” Reid said. “And no state in the nation is hit harder by this meltdown than Nevada, where subprime borrowers make up a quarter of all mortgage loans, and one out of every 65 homes forecloses. This is unacceptable, and Democrats are leading the way to do something about it.”

Said Pelosi: “The subprime crisis is a national economic emergency and it is a very personal tragedy for millions of families.  We hope the President will join us and take immediate action that will help prevent additional foreclosures and allow for more American families to keep their homes.”

About 1.7 million households may lose their homes to foreclosure this year and next, according to estimates by Moody’s Economy.com, double the number of the previous two years.  It is clear that foreclosures have a significant negative impact, not only on borrowers and lenders, but also on neighboring homeowners and the surrounding community because of lower property values, decreased property tax revenues, and higher municipal maintenance costs. 

Advocates report that if the trend in foreclosure continues, the surge of subprime lending could eliminate more homeowners than it initially created.  The National Consumer Law Center notes that if these foreclosures go unchecked, the coming crisis could eclipse the number of people displaced by Hurricane Katrina.  

Lawmakers today agreed to press the administration for additional resources to fund HUD-approved non-profits that are on the ground helping homeowners to stave off foreclosures.  These non-profits have been inundated with borrowers, whose loans have reset to higher monthly payments, and need assistance to refinance with the lender that holds their mortgage.  This negotiation and counseling process is time consuming and labor intensive.  But compared to the costs of a family losing their home to foreclosure, the costs are small. 

“This crisis is the equivalent of a slow-motion, 50-state Katrina, taking people’s homes one-by-one, devastating their lives, and destroying their communities,” said Dodd, Chairman of the Senate Banking Committee.  “Too often, we get lost in a sea of numbers and statistics when we talk about this problem.  But behind each number, behind each statistic, is a young family, often working multiple jobs, struggling to make ends meet; or an elderly woman living alone, or a widow caring for young children, trying to save their homes.  Regrettably, as with Katrina, the Administration’s response has been marked by the same denial, delay, timidity, and incompetence. The Administration needs to act decisively to ensure that more homeowners aren’t swept away by the rising tide of foreclosures that are engulfing our nation.”

Said Frank, Chairman of the House Financial Services Committee: “What we need is a comprehensive approach—responsible help for people caught in existing mortgages, legislation to make a recurrence of this much less likely, and action on the construction of affordable housing so that low and moderate income people have more housing choices.”

According to a report by the Joint Economic Committee in April, it only costs housing counselors about $1,500 on average to help a family work with their lender and loan servicer to prevent foreclosure on their home.  But the estimated combined cost of each foreclosure on the homeowner, lender, local government and lost property values could be up to $227,000. 

“We’re here to ask the Administration to do the right thing; act decisively and quickly to help families protect their main source of wealth and prosperity, and to prevent the subprime mortgage crisis from dragging our economy down with it,” said Schumer, Chairman of the Joint Economic Committee.  “The bottom line is, the price of inaction is high. Yet the price of action is modest.  If this Administration can set aside ideology and join us in these targeted and effective measures, we will go a long way toward saving homes and protecting the foundation of our economy. And if the administration refuses to act soon, this Congress will.  

Said Maloney, Chairwoman of the House Financial Services Subcommittee on Financial Institutions: “The subprime mortgage mess threatens to displace more Americans than Hurricane Katrina.  The Democratic Congress is working hard to help struggling homeowners stay in their homes, hold lenders accountable, and stem the broader economic impact of the mortgage meltdown.  I hope the President will choose to work with us instead of sitting idly by while millions more hardworking Americans lose the dream of home ownership on his watch.”

For $200 million in federal foreclosure prevention funding, nearly 130,000 families could be helped to avoid foreclosure; that is a little over one-half of the cost of the Administration’s Iraq war spending each day ($330million). 

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Sep 25 2007

Schumer: With Home Prices Suffering Largest Drop in Sixteen Years and Home Sales Falling Again, White House Must Not Ignore Obvious Signs of Crisis

SCHUMER: WITH HOME PRICES SUFFERING LARGEST DROP IN SIXTEEN YEARS AND HOME SALES FALLING AGAIN, WHITE HOUSE MUST NOT IGNORE OBVIOUS SIGNS OF CRISIS

S&P/Case Shiller Index Show Home Prices Fall at a Record Rate in August Marking the Largest Monthly Drop in 16 Years

Existing Home Sales Fall 3.8% in August, Leaving the Housing Market Saturated with Unsold Homes According to the Realtors

Washington, D.C. – U.S. Senator Charles E. Schumer, Chairman of the Joint Economic Committee and the Senate Housing Subcommittee, today reacted to new and troubling housing news.  The S&P/Case Shiller home prices index of ten U.S. cities showed a 4.5 percent drop in housing prices in July compared to July 2006, the largest drop since July 1991. The twenty city index also fell, declining 3.9 percent. The National Association of Realtors announced that existing home sales in August fell for the sixth consecutive month, dropping 4.3 percent compared to July and 12.8 percent compared to August of 2006. Single family home sales fell 3.8 percent in August as compared to July, and were down 13.0 percent compared to August 2006.

“While the White House has pretended not to hear the steady drumbeat of bad news in the housing markets, American families continue to see the real value of their homes deteriorate month by month,” Schumer said. “The spillover of the subprime mortgage mess into the larger housing market deserves a strong, decisive response from the administration to protect homeowners, consumer spending, and the overall economy before things get worse.”

Housing Prices Continue to Fall at a Record Pace:

Home prices continue to fall at an increasing rate according to the monthly S&P/Case-Shiller's Home Prices Indices, which track housing prices in metropolitan areas and are considered a leading measure of U.S. single-family home prices. The 10-City Composite index showed an annual decline of 4.5 percent (its biggest since 1991) and the 20-City Composite reported an annual decline of 3.9 percent.

While five metro areas – Atlanta, Charlotte, Dallas, Portland and Seattle – are still registering positive annual returns, all five have also shown a deceleration in the rate of growth of home prices, signaling that they are getting closer to joining the fifteen other cities surveyed which have registered declines in home prices.

Detroit, Tampa, San Diego, Phoenix, and Washington, have seen the largest decline in home prices relative to July of last year.

Sales of Existing Homes Reach Slowest Pace since 2005:

Sales of existing homes were down 4.3 in August, or 12.8 percent over the past 12 months according to the National Association of Realtors.  Single-family sales were down 3.8 percent month-to-month and 13.0 percent over past 12 months.

Total housing inventory rose 0.4 percent at the end of August to 4.58 million existing homes available for sale, which represents a 10.0-month supply at the current sales pace, up from a 9.5-month supply in July.

Regionally, the West was hardest hit in August, with existing-home sales falling 9.8 percent in August to a level of 1.01 million, 21.7 percent below August 2006 levels. The Midwest did not fare much better, with sales falling 5.2 percent from July and 10.5 percent compared to a year ago. In the South and Northeast, sales fell by 2.7 and 2.0 percent respectively from July, and 12.7 and 5.7 percent respectively from August 2006.

Schumer’s Foreclosure Prevention and Mortgage Broker Plans:

Senator Schumer has been at the forefront of Congressional efforts to contain the subprime market crisis and ensure that irresponsible underwriting of this magnitude is not allowed to happen again.  This month, Schumer introduced legislation to lift the GSE conforming loan limit to above the current $417,000 maximum and to temporarily lift the portfolio caps on Fannie Mae and Freddie Mac, allowing them to provide liquidity in the mortgage market.  Senator Schumer also fought for $100 million in funding to housing non-profits that help negotiate between borrowers and lenders to keep families in their homes, which passed the full Senate last week.

In May, Schumer introduced sweeping legislation to deal with unscrupulous lending practices this Congress, the Borrowers Protection Act, which would upgrade standards that mortgage brokers and originators must abide by when making new loans to borrowers. 

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.

 www.jec.senate.gov

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Sep 18 2007

Schumer Reacts to Federal Open Market Committee Rate

SCHUMER REACTS TO FEDERAL OPEN MARKET COMMITTEE RATE CUT

U.S. Sen. Charles E. Schumer (D-NY), the Chairman of the Joint Economic Committee, released the following statement in response to the Federal Open Market Committee decision to reduce interest rates by 50 basis points:

“When a conservative Fed drops the interest rate this much it is obvious that the economy is in some degree of trouble.  But the rate cut is only one of many tools that should be used to protect the economy from the subprime fallout.  The regulators and the administration can get more focused bang for the buck by allowing Fannie and Freddie to provide more financing to prevent unnecessary foreclosures."

"The Federal Reserve had its hands full considering August's bad economic news - zero job growth, a weakening housing market, and a severe spike in foreclosures.  The White House needs to back off its ideological opposition to using Fannie and Freddie to provide meaningful relief to struggling homeowners, which would help both calm the foreclosure storm and assuage the foundering credit markets.”

Schumer and the Joint Economic Committee will hold a hearing tomorrow morning, “Evolution of an Economic Crisis?: The Subprime Lending Disaster and the Threat to the Broader Economy” to take a closer look at the direct and indirect economic shocks resulting from the deterioration of the housing market, at 9:30am in Room 216 of the Hart Senate Office Building.  

The hearing witnesses will be:  

  • The Honorable Peter R. Orszag, Director, Congressional Budget Office
  • Dr. Robert J. Shiller, Stanley B. Resor Professor of Economics, Yale University
  • Mr. Martin Eakes, Chief Executive Officer, Center for Responsible Lending
  • Mr. Alex J. Pollock, Resident Fellow, American Enterprise Institute 

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.

 www.jec.senate.gov

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Sep 18 2007

On Heels of Foreclosure Spike and Regardless of What the Fed Today, Schumer Calls on Bush Administration to Finally Deploy Tools to Calm Foreclosure Storm

ON HEELS OF FORECLOSURE SPIKE AND REGARDLESS OF WHAT FED DOES TODAY, SCHUMER CALLS ON BUSH ADMINISTRATION TO FINALLY DEPLOY TOOLS TO CALM FORECLOSURE STORM

August Foreclosure Filings up 115% Since Last Year, Marking Highest Number of Filings on Record According to RealtyTrac, Inc.

Joint Economic Committee Hearing Tomorrow Will Examine Depth of Housing Market Crisis with CBO and Housing Experts

Bad Housing and Economic News Sets Table for FOMC Meeting

Washington, D.C. – U.S. Senator Charles E. Schumer (D-NY), Chairman of the Joint Economic Committee (JEC), today reacted to RealtyTrac Inc’s announcement that home foreclosure filings surged to 243,947 in August, up 115 percent from August 2006 and 36 percent from July, marking the highest number of foreclosure filings since RealtyTrac began tracking monthly filings.   The JEC will be holding a hearing tomorrow morning to examine the depth of the housing market crisis. 

"The Federal Reserve has its hands full considering August's bad economic news - zero job growth, a weakening housing market, and a severe spike in foreclosures,” Schumer said.  “The White House needs to back off its ideological opposition to using Fannie and Freddie to provide meaningful relief to struggling homeowners, which would help both calm the foreclosure storm and assuage the foundering credit markets.”

According to RealtyTrac Inc., the foreclosure filing rate nationally is now one in every 510 homes.  Bank repossessions numbered 42,789 in August, up from 26,842 in July, and more than double from August 2006, when filings numbered 20,116.

Over the next two years, nearly 2 million homeowners with adjustable-rate mortgages will experience payment shocks as their loans reset in a weakening housing market, a harbinger of more foreclosures to come.

Schumer and the Joint Economic Committee will hold a hearing, “Evolution of an Economic Crisis?: The Subprime Lending Disaster and the Threat to the Broader Economy” to take a closer look at the direct and indirect economic shocks resulting from the deterioration of the housing market, on TOMORROW, September 19, 2007 at 9:30am in Room 216 of the Hart Senate Office Building.  

The hearing witnesses will be:  

  • The Honorable Peter R. Orszag, Director, Congressional Budget Office
  • Dr. Robert J. Shiller, Stanley B. Resor Professor of Economics, Yale University
  • Mr. Martin Eakes, Chief Executive Officer, Center for Responsible Lending
  • Mr. Alex J. Pollock, Resident Fellow, American Enterprise Institute 

Senator Schumer has been at the forefront of Congressional efforts to contain the subprime market crisis and ensure that irresponsible underwriting of this magnitude is not allowed to happen again.  This month, Senator Schumer introduced legislation to lift the GSE conforming loan limit to above the current $417,000 maximum and to temporarily lift the portfolio caps on Fannie Mae and Freddie Mac, allowing them to provide liquidity in the mortgage market.  Senator Schumer also fought for $100 million in funding to housing non-profits that help negotiate between borrowers and lenders to keep families in their homes, which passed the full Senate last week.

In May, Schumer introduced sweeping legislation to deal with unscrupulous lending practices this Congress, the Borrowers Protection Act, which would upgrade standards that mortgage brokers and originators must abide by when making new loans to borrowers. 

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.

www.jec.senate.gov

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Sep 12 2007

New Analysis by Joint Economic And House Budget Committees: 83 Percent of Crushing Federal Debt is a Product of Past Three GOP

NEW ANALYSIS BY JOINT ECONOMIC AND HOUSE BUDGET COMMITTEES: 83 PERCENT OF CRUSHING FEDERAL DEBT IS A PRODUCT OF PAST THREE GOP PRESIDENTS

Schumer and Maloney Urge White House to Stop Loading Future Generations with Backbreaking Debt

Washington, D.C. – Senator Charles E. Schumer, Chairman of the Joint Economic Committee (JEC) and Rep. Carolyn B. Maloney, Vice Chair of the JEC released a new JEC and House Budget Committee analysis of total national and public debt incurred under the past five administrations.  The analysis highlights a proven track record of fiscal responsibility under Democratic administrations, and conversely a sharp increase in debt under Republican administrations.

The great majority of our national debt has been incurred by the past three Republican administrations. Over the past thirty years, those administrations have borrowed an average of $233 billion each year from the public. In contrast, under Democratic administrations the Federal government has borrowed an average of $26 billion each year, just one-ninth as much.

Instead of building up surpluses in preparation for the upcoming retirement of the Baby Boom generation, the current Bush administration has continued the tradition of Reagan and Bush Sr. by abandoning fiscal discipline and permitting the debt to skyrocket. 

Sen. Schumer said: “The last three Republican administrations have thrown future generations under the runaway train of debt.  Our children and grandchildren will be responsible for repaying mountains of debt and shoring up the financial solvency of the federal government.  The fiscally irresponsible Republicans owe the American people a return to the common sense fiscal policies of the Clinton administration, when surpluses and prosperity, not deficits and recession, were the norm.” 

Rep. Maloney said: “Republican administrations over the last thirty years have made us a nation of debtors, vulnerable to the economic and political decisions made half a world away.  Democrats in Congress want to restore the fiscal discipline of the 1990s that reduced our debt and helped create broadly shared prosperity. We have a realistic budget plan that adheres to pay-go principles for bringing down the deficit, but that doesn’t shortchange our national defense or our citizens.”  

 

Highlights from the joint JEC and Budget Committee analysis reveals:

TOTAL NATIONAL DEBT:

The total national debt includes amounts owed by one U.S. government account to another, mostly for Social Security payments promised to future retirees.

Approximately $3.2 trillion of our $8.9 trillion national debt has been accumulated during the past six years of the Bush administration.

  • Nearly three-quarters of the total national debt has been accumulated under the past three Republican administrations – Reagan, George Bush the elder, and the current George Bush.

TOTAL PUBLIC DEBT:

Debt held by the public excludes amounts owed by one U.S. government account to another. The net debt held by the public determines the total interest payments the government must pay, and most directly reflects the degree to which the Federal government must borrow to finance current deficits. For this reason, many economists focus on total debt owed to the public as the best single metric of the government’s indebtedness. 

  • The U.S. government has a total debt of over $5 trillion owed to outside parties.  Nearly half of that is owed to foreign governments, primarily to Japan, China, and the United Kingdom. 
  • In 2007, American taxpayers will pay $235 billion in net interest payments to service this debt, or 9.1 cents on every dollar of government revenues
  • $1.8 trillion, or 35 percent, of the total debt owed to the public has been accumulated under the past six years of the Bush administration.
  • $4.2 trillion, or 83%, of the total debt owed to the public was accumulated under the past three Republican administrations.

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.

www.jec.senate.gov

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Sep 05 2007

Schumer: Weak Job Growth and Plunging Home Sales are Evidence that Subprime Market Woes are Spreading

SCHUMER: WEAK JOB GROWTH AND PLUNGING HOME SALES ARE STARK EVIDENCE THAT SUBPRIME MARKET WOES ARE SPREADING

ADP Announces Only 38,000 Private Sector Jobs Added in August, the Slowest Rate of Growth Since June 2003

NAR Report Shows Pending Sales of Existing Homes Plunged in July, Falling to the Lowest Level Since September 2001

Washington, D.C. – Today, U.S. Senator Charles E. Schumer, Chairman of the Joint Economic Committee and the Housing Subcommittee on the Senate Banking Committee, reacted to bleak economic news on employment and housing sales.  The ADP /Macroeconomic Advisors report on private sector job growth announced this morning showed that private payrolls grew by only 38,000 jobs in August, the slowest rate of growth since June 2003.  The National Association of Realtor's Pending Home Sales Index showed pending sales of previously owned U.S. homes plunged in July, falling to a reading of 89.9, the lowest since September 2001 when the index stood at 89.8.   

Private Sector Employment Figures:

“Today's ADP report showing a huge drop in jobs created in August is very troubling.” Schumer said.  “If Friday's employment figures from the Bureau of Labor Statistics (BLS) mirror the ADP, it has to be a wake up call to the Administration and to the Fed, particularly on the spillover of the subprime crisis intro the broader economy. Last week, President Bush made a move toward addressing this crisis, but the administration must do more to restore confidence in the mortgage market and to help borrowers who were duped into bad loans.”

While data on payroll employment for August will be released by the Labor Department on Friday, the advance indicator of that measure released by ADP today suggests the possibility that August jobs growth was substantially slower than most analysts are expecting.  The ADP is the largest sample of actual payrolls available prior to the Labor Department’s release, but it is a smaller sample than the Department’s.

The ADP figures (a measure based on the private-sector payroll numbers processed by ADP for August) show that private payrolls grew by only 38,000 jobs last month.  Adding to that projected growth of 20,000 government jobs, the ADP advance estimate suggests that growth in total nonfarm payrolls gained only 58,000 jobs in August.  That’s a slower gain than the 92,000 job increase in July, and well below the 110,000 jobs financial markets are expecting (which itself is slower than recent trends).    The report also revised July's private sector job growth downward from the originally reported 48,000 to 41,000 jobs added.  

Sinking Sales of Existing Homes:

“The disturbing drop in pending home sales in July is stark evidence that the subprime crisis is hitting the housing market hard,” Schumer said.

 The NAR Pending Home Sales Index, based on contracts signed in July, fell 12.2 percent to a reading of 89.9 in July from the June index of 102.4, and was 16.1 percent lower than in July 2006 when it stood at 107.1.

The index is a leading indicator for the housing sector, based on pending sales of existing homes.  A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.

www.jec.senate.gov

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Sep 04 2007

Schumer Statment on the Confirmation of Fmr. Rep. Jim Nussle to Head the Office of Managment and

SCHUMER STATEMENT ON THE CONFIRMATION OF FMR. REP. JIM NUSSLE TO HEAD THE OFFICE OF MANAGEMENT AND BUDGET

U.S. Senator Charles E. Schumer, the Chairman of the Joint Economic Committee, released the following statement in opposition to the confirmation of former Rep. Jim Nussle to head the Office of Management and Budget:

"Former Rep. Nussle may be President Bush's new choice for managing the federal budget, but if this administration's fiscal policies don't change significantly, his confirmation will not move us one step closer towards fiscal responsibility.  If we stay on the President's current economic course, we are going to continue to incur massive federal deficits and our lackluster economic growth.  I sincerely hope that Rep. Nussle is an advocate for sensible pay-as-you-go budget priorities, not just for the ideological agenda put forth by the administration." 

Rep. Nussle's nomination was just approved by the Senate by a vote of 69-24.  Sen. Schumer voted against the nomination.

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Aug 27 2007

In the Wake of New Housing Statistics, Schumer Repeats Call for Increased Foreclosure Prevention and Renewed Focus on Housing Market

IN THE WAKE OF NEW HOUSING STATISTICS, SCHUMER REPEATS CALL FOR INCREASED FORECLOSURE PREVENTION AND RENEWED FOCUS ON HOUSING MARKET

 

Sales of Existing Homes Down 0.2% from June and 9.0% from July 2006

 

Schumer: More Needs to Be Done to Address Subprime Mortgage Mess and to Restore Confidence in Housing Market

 

Washington, D.C. – Today, U.S. Senator Charles E. Schumer, Chairman of the Joint Economic Committee (JEC) reacted to the National Association of Realtors announcement that existing home sales declined by 0.2 percent in July, leaving the level of sales 9.0 percent below the level 12 months ago.  

 

“The decline of existing home sales is another in a series of daily reminders that more must be done to prevent the subprime mortgage market from further damaging the housing market and broader economy,” Schumer said.  “While preserving liquidity in the financial markets is important, the fundamental problems spurring on this crisis must be addressed.  We need to deal with widespread uncertainty in the mortgage market and help to refinance borrowers who were duped into bad loans so we can restore confidence in the housing market and keep credit worthy families in their homes.”

 

Sales of existing single-family homes were down 0.4 percent last month, and 9.3 percent over the past year.  The median sales price of existing single-family homes was $228,600 in July, down 1.0 percent from last July. Over the next two years, nearly 2 million homeowners with adjustable-rate mortgages will experience payment shocks as their loans reset in a weakening housing market, a harbinger of more foreclosures to come.

 

Market experts estimate that up to 40% of current subprime borrowers could now qualify for prime, fixed rate loans, making the crisis one that could be curtailed by strong efforts to assist borrowers.  Not only will such efforts save hundreds of thousands of families from losing their homes, it will also prevent further damage to the already weak housing market and the economy overall.

 

Acting to prevent foreclosures is not only important from the perspective of protecting entire communities, but it also makes good economic sense.   Foreclosures can cost up to $80,000 for all stakeholders—homeowners, neighbors, cities and local governments, lenders, and loan servicers.  Meanwhile, estimates suggest that foreclosure prevention counseling can cost as little as $1,000 per household.  To be successful, these programs require one-on-one counseling with the homeowner and negotiations with a variety of stakeholders – making them very resource-intensive.  The rising wave of subprime foreclosures has caused existing programs to become overwhelmed by requests for assistance, stressing the non-profits’ ability to give troubled homeowners the assistance they need to workout a suitable payment plan with the lenders.

 

Senator Schumer has been at the forefront of Congressional efforts to contain the subprime market crisis and ensure that irresponsible underwriting of this magnitude is not allowed to happen again.  In May, Schumer introduced the first major legislation to deal with unscrupulous lending practices this Congress, the Borrowers Protection Act, which would upgrade standards that mortgage brokers must abide by when making new loans to borrowers. 

 

Schumer has also fought for $300 million in federal resources targeted to community foreclosure prevention specialists to help stem the tide of foreclosures that threaten to cost more families their homes and further weaken the housing market.  The full Senate Appropriations Committee has approved $100 million for HUD Housing Counseling programs in the Transportation, Housing and Urban Development, and Related Agencies FY08 Appropriations Bill. With these funds, non-profit agencies will be able to provide individual counseling by working one-on-one with borrowers who are in unaffordable subprime loans.

The Joint Economic Committee, established under the Employment Act of 1946, was created by Congress to review economic conditions and to analyze the effectiveness of economic policy.

www.jec.senate.gov

 

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