NEW JOINT ECONOMIC COMMITTEE REPORT REVEALS TOTAL ECONOMIC COSTS OF WAR COULD EXCEED $3.5 TRILLION IF U.S. STAYS THE COURSE

Joint Economic Committee Details High Hidden Costs to U.S. Economy of Borrowing Funds to Pay for War, Foregone Investments, Veterans’ Post-War Care, and Oil Market Disruptions

Leaders Show that Other Spending Priorities like Health Care and College Aid Are Being Shortchanged; Economic Costs Per U.S. Family Could Reach $46,400

Washington, D.C. – Senate Majority Leader Harry Reid (D-NV) along with Joint Economic Committee (JEC) Chairman Sen. Charles E. Schumer, JEC Vice-Chair Rep. Carolyn Maloney, and House Majority Leader Steny Hoyer released a new report exposing the hidden costs of the war in Iraq. The Joint Economic Committee report entitled, “War at Any Price? The Total Economic Costs of the War” details the high hidden economic costs of the war in Iraq beyond the direct budgetary appropriations, including interest costs of borrowing these funds, lost investment, long term veteran’s health care, and oil market disruptions. The JEC estimates these costs could total $3.5 trillion depending on how long President Bush pursues the same course of action in Iraq.

The JEC estimates the total costs of the war to the American economy and the key findings are:

The total economic costs of the wars in Iraq and Afghanistan so far have been approximately double the total amounts directly requested by the Administration.

Even assuming a moderate drawdown in troop levels, total economic costs of the wars in Iraq and Afghanistan (with the vast majority of funds going to the war in Iraq) would amount to $3.5 trillion between 2003 and 2017. This is over $1 trillion higher than the recent Congressional Budget Office (CBO) federal cost forecast for the same scenario, which counted only direct spending and interest paid on war-related debt.

The total economic cost of the war in Iraq to a family of four is $16,500 from 2002 to 2008. When the war in Afghanistan is included, the burden to the American family is $20,900. The potential future impact on the family of four skyrockets to $36,900 for Iraq and $46,400 for Iraq and Afghanistan from 2002 to 2017.

Reid stated, "Today’s report by the Joint Economic Committee is jarring. It is yet another reminder of how President Bush’s stubborn refusals to change course in Iraq – and Congressional Republicans’ willingness to rubberstamp his failed strategy – has real consequences at home for all Americans. The full costs of this war to our economy are manifested in ways that have never been accounted for by this Administration – we are funding this war with borrowed money, Americans are paying more at the gas pump and it will take years for our military to recover from the damage of the President’s failed war strategy. And if President Bush gets his way and we do not significantly drawdown our troops, the total costs of this war will reach astronomical heights. Democrats are committed to ensuring this does not happen.”

“I would like to thank the Joint Economic Committee, especially Chairman Schumer and Vice Chair Maloney, for compiling this important report,” said Hoyer. “This report is more evidence that the war in Iraq has extracted a tremendous price on our nation while not making us safer. It shows the American people again why it is so important that we responsibly redeploy our troops and refocus our strength and resources.”

Schumer said, “The backbreaking costs of this war to American families, the federal budget, and the entire economy are beyond measure in many ways. While we in Congress have been fighting for a significant change of course in the President’s Iraq policy, the JEC report estimates that we are already set to incur economic costs double what the Administration has spent on this Iraq war – nearly $1.3 trillion through 2008. And if the President’s stay-the-course strategy prevails through 2017, the total economic costs for the war will top $3.5 trillion. What this report makes crystal clear is that the cost to our country in lives lost and dollars spent is tragically unacceptable.”

“The cost of this war has been too great, and the human toll too high. We know that a rapid redeployment will save countless American lives. The Joint Economic Committee estimates that a sharp drawdown in U.S. forces, much like the plan the House is advancing, could also save the American economy up to $2 trillion dollars over the next ten years. Democrats in Congress are committed to bringing our troops home and charting a new, more responsible direction in Iraq," said Maloney.

The key costs beyond the direct fiscal spending include the following:

Borrowed money to finance the Iraq War has displaced productive investment. Sincetaxes have been cut and other spending has increased since the beginning of the Iraq war, it seems clear that the war has been and continues to be funded using borrowed money. The increase in government borrowing displaces substantial amounts of productive investment by U.S. businesses, thus reducing productivity in the economy over many future years. Interest costs paid by taxpayers are only a subset of these costs.

Substantial Iraq-related costs have been borrowed from foreigners. The interest payments on this debt constitute a flow of funds from Americans to those foreigners who have bought our tremendous debt.

The war in Iraq has disrupted world oil markets leading to increased prices. The Iraq war has occurred in a context of greatly increasing world demand for oil, as well as declining excess production capacity. Both the direct effect of the war in reducing Iraqi oil production, and the indirect effect of creating greater instability in the Middle East can act to increase oil prices. Moreover, relatively small increases in oil prices can have substantial economic effects.

Other economic and budgetary costs have grown due to the Iraq war. These expenditures include the costs of treating the wounded and disabled, lost productivity from those injured, potential future expansions in the size of the military made necessary by the war, the costs of repair and refit for military equipment, increases in recruitment and retention costs or the military, and economic disruptions created by the deployment of the Reserves. The sum of the costs listed above raises the economic costs of the war from $607 billion in direct funding for the Iraq war to $1.3 trillion and could reach $1.6 trillion by the close of FY 2008 if spending in Afghanistan is included.

Total Economic Costs 2002-08 (if President’s supplemental is passed):

$1.3 trillion for Iraq alone $1.6 trillion for Iraq and Afghanistan

True Cost of the War has been Double the Administration’s Spending (through 2008):

• To date, the President has requested $607 billion for the Iraq war alone since 2003, and a combined $804 billion including Afghanistan.

• This is over ten times higher than the $50 to $60 billion estimated by the Administration prior to the start of the war and costs have increased every year since 2003.

• The funds requested for these wars through 2008 would have been sufficient to provide health insurance coverage to all of America’s uninsured for the 2003-2008 period. (There were approximately 45 million uninsured Americans at the start of the war and this number rose to 47 million by 2006, which is the latest figure available).

Total Economic Costs 2002-2017 (CBO’s considerable drawdown scenario)

$2.8 trillion for Iraq alone $3.5 trillion for Iraq and Afghanistan

The Cost of the War Could Balloon to $3.5 Trillion or More

The report forecasts a scenario, using the same CBO, 10-year window, corresponding to the recent statement by Secretary of Defense Robert Gates that a protracted “Korea-like” presence would be required in Iraq. This scenario involves a considerable drawdown in Iraq troop levels of 66 percent by the year 2013, and a smaller drawdown of 33 percent in Afghanistan forces. The scenario also assumes that some active conflict with insurgents continues over the period. These CBO estimates of $2.4 trillion are used as a base for the analysis in this report. The total economic cost of the wars in Iraq and Afghanistan rise by over $1 trillion to $3.5 trillion.

Costs could far exceed these projections if the significant drawdown assumed in this scenario does not materialize. This CBO budgetary scenario projects that appropriations for the Iraq war will begin to drop in 2009, and by FY 2013 Iraq appropriations are projected to be less than half FY 2007 levels. But historically appropriations for the Iraq war have increased every year since the invasion, by between 12 and 40 percent annually.

Maintaining post-surge troop levels in Iraq over the next ten years would result in costs of $4.5 trillion. If a rapid withdrawal takes place, future costs of these wars to the U.S. economy over the next decade could be reduced by almost $2 trillion.

www.jec.senate.gov

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SCHUMER: WHITE HOUSE PLAN FOR IMPORT SAFETY LEAVES CONSUMERS IN THE DARK AND A HODGEPODGE OF FEDERAL OVERSIGHT

Schumer Alternative Creates New Commerce Department Official to Coordinate Food and Product Safety Oversight

Schumer Bill Promotes Development of Food Tracing Technology to Reveal Supply Chain History of All Consumable Goods

Bush Administration Plan Only Targets “High-Risk” Products and Expands the Authority of Failing Agencies

WASHINGTON, D.C.U.S. Senator Charles E. Schumer (D-NY), the Chairman of the Joint Economic Committee and a member of the Senate Finance Committee, today reacted to the Bush Administration’s import safety working group recommendations on policing food and product safety after rounds of recalls of unsafe food and lead-tainted toys exposed massive gaps in the U.S. import safety framework. The White House plan, which may lack critical funding, would ideally target the riskiest products, increase penalties for violators and give the Food and Drug Administration (FDA) and Consumer Product Safety Commission (CSPC) more authority to access production records, require testing, and recall tainted products.

“The administration's working group on import safety leaves consumers in the dark and continues the hodgepodge of federal oversight. Of course we need tougher penalties, more inspections, and better information sharing when it comes to the food and toys coming into our country,” Schumer said. “However, the rubber won't meet the road until the administration does three key things: Provide the FDA and CPSC with more federal dollars so they can carry out their heavy mandates; give consumers quick and user-friendly access to comprehensive food and product safety information; and set and implement government-wide priorities for import and domestic food and product safety oversight.”

Schumer introduced groundbreaking legislation last week establishing a new office within the Department of Commerce to coordinate the oversight activities of the patchwork of agencies that regulate foods and products sold in the United States. The new position would bring order to the current regulatory setup, which is hobbled in part by confusing overlaps in agency jurisdiction and the lack of uniform standards for product quality and inspection regularity. The new official would head a council, also formed under Schumer’s legislation that includes representatives from the various agencies with food and product safety oversight responsibilities.

The official would be charged with the following tasks to ensure consumer safety and streamline the regulatory process:

• Create a “one-stop” online database with information on all food and product recalls, advisories, alerts, seizures, defect determinations, and import bans.

• Implement a national recall alert system for disseminating as-it-happens information on recalls to consumers and businesses, including retailers, the media, and medical professionals.

• Improve identification and prevention of unsafe imports.

• Promote the development of food tracing technology to provide consumers with access to the supply chain history of a consumer product.

Schumer has also co-sponsored legislation with Sen. Mark Pryor (D-AR) to reform the Consumer Product Safety Commission, expanding its authority, increasing fines, and improving transparency. The legislation also:

• Requires independent, third party safety certification on every children’s product that enters the United States.

• Requires manufacturers to label children’s products with tracking information useful to facilitate recall.

• Bans the direct use of lead in all children’s products.

• Allows state Attorneys General to bring civil action on behalf of its residents to enforce product safety laws.

• Provides whistleblower protections for manufacturers’ and importers’ employees to shed light on any problems along the supply chain.

• Makes it unlawful for retailers to sell a recalled product.

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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SCHUMER: FALLING HOME PRICES ARE SERIOUS SIGN THAT HOMEOWNERS AND OUR ECONOMY ARE IN DANGER
 
Reports today from the S&P/Case-Shiller index indicate that housing prices have again fallen at record rates. The 10 city index dropped 5 percent in August as compared to August 2006 (the largest drop since June 1991) and the 20 city index fell 4.4 percent. 

In response to this added pressure on homeowners and on the housing market, Sen. Chuck Schumer (D-NY), the Chairman of the Joint Economic Committee, said:
“Falling home prices evidenced by the Case-Shiller index and increasing foreclosures predicted by the JEC last week are serious signs that our economy is in trouble.  Professor Shiller has gotten the subprime foreclosure fallout right from the start and hopefully the Bush administration will act to prevent it from getting any worse.”
 
Robert Shiller, an economist who helped create the S&P/Case-Shiller index testified before the Joint Economic Committee last month. In his testimony, Shiller said, “I am worried that the collapse of home prices might turn out to be the most severe since the Great Depression. It is difficult to predict the depth, duration and all of the consequences of such a decline operating in a much more complex modern economy.”
 
A new report by the Joint Economic Committee investigated the spillover effects of the subprime mortgage crisis, finding that the worst is far from over with two million foreclosures possible before the end of 2009.  The report, “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 stand to lose billions of dollars if foreclosures continue unchecked.

Prof. Shiller’s testimony before the committee and the new JEC report can be found on our website:
https://www.jec.senate.gov
 
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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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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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."

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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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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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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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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