In Their Own Words: Why Dem Senators Screwed Homeowners

Only 45 Senate Democrats voted Thursday to oppose the banking industry and pass legislation aimed at stemming foreclosures. The bill would have allowed bankruptcy judges to allow homeowners who met strict conditions to renegotiate mortgages -- a process known as cramdown. It would have only applied to mortgages entered into before 2009.

Earlier in the week, the measure's lead proponent, Sen. Dick Durbin (D-Ill.), concluded that banks "frankly own the place."

Of course, the 12 Democrats who voted "no" have a more charitable view of their own motivations. So we asked them what their reasoning was. In their own words, here is how (those we could find) explained their vote:

Byron Dorgan (D-N.D.): "A number of things. I thought the 31 percent is an arbitrary number. I think there are a whole lot of folks, are likely folks, out there who have little debt outside their home who could -- I just thought it was an arbitrary number and I didn't like the way it was constructed."

Dorgan is referring to the percentage of a person's income that a judge could determine should be dedicated to paying the monthly mortgage. The figure is roughly in line with what financial analysts agree is appropriate.

Is Durbin right? Do banks own the Senate?

"I don't know who he's speaking about," said Dorgan. "He worked on this for a long, long time. And I wish they would have found a way to reach an agreement that would have allowed the legislation to get through...I don't know the context of which he said that."

Is the bill totally finished? "I don't know. I think I wish they had found some middle ground by which they could have moved a piece of legislation. They didn't do that. And you know, this legislation went well beyond subprime, as you know."

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Ben Nelson (D-Neb.): "I've not supported the cramdown for a variety of reasons, not the least of which is that I hate to see that authority to determine what the future contract is ceded to the court."

Evan Bayh (D-Ind.), who ultimately voted yes: "My concern about this is that in our appropriate zeal to help the four or five percent of Americans who might be faced with bankruptcy, we don't unduly raise the costs of homeownership on the 95 percent who never will."

Tom Carper (D-Del.): "One of the reasons why usually mortgage rates are cheaper for primary homes is that the markets have the certainty that the judge won't be invited to come in and change the terms of the mortgage."

Of course, the Senate package only included mortgages pre-2009, so interest rates on future mortgages would be unaffected. So what would it take to get Carper's vote?

"We talked earlier about limiting the range of the mortgages that can be modified from those originated, say, in 2003 to maybe through 2007. That would've been very helpful. The other thing is, the House has a provision that says if a mortgage is modified on behalf of a homeowner and later on that homeowner sells the house and realizes the profit--the House has a provision that if the lender participates, the first year [the lender recoups] 90 percent [of that profit], second year is 70 percent, third year is 50 percent, fourth year, 30 percent. I thought that was a better formula for participation. So those two points would have done it for me. Not that that would have made the bill perfect, but it would have done it for me. And it's unfortunate we didn't have a chance, given the nature of the agreement, announced by Senator Reid, that we wouldn't have a chance to offer any amendments."

Is Durbin right about who owns the Senate?

"The banks sure don't think so. My guess is they don't feel like they have much [power] at all. Let me just say, I don't that's true. Not even close. But we could have had this provision--could have passed something close to what was on the floor--could have passed if we'd had, maybe on the floor, a chance to perfect it."

Could it come back again?

"My guess is we're not going to see this again."

Really?

"I don't think we're going to see this again."

Jon Tester (D-Mont.): "I just think a deal's a deal. I have a lot of empathy for folks who tend to get led astray, but I just think it's going to create some problems -- pretty obvious, actually. I don't have to list them. I'm generally opposed. I don't think it works well."

Mary Landrieu (D-La.): "My community bankers are really opposed to it and I think it's important for people to realize there is a big difference right now in the country between the health of these large international financial institutions and our local community banks...I think we gotta be careful about adopting processes and procedures that would really hurt our community banks."

The Huffington Post asked a few Republicans, too, since they still do, after all, vote.

Mel Martinez (R-Fla.): "We're working through this crisis. It's not quite as impending an issue as it may have been four months ago, because I think we're beginning to ease -- the crisis is sort of working its way through."

George Voinovich (R-Ohio): "I evaluated it and it harms more than it helps. It's the precedent that it sets in terms of a lot of people who are out there quite frankly very responsible. Our credit unions were giving money to people who were responsible. You've got some people who were being very responsible and doing their job and come to you and say if this happens we're going to have to change the interest rate, recalculate. I mean, I want to encourage those people. I don't want to discourage them."

Susan Collins (R-Maine), on how her vote will play at home: "I think it'll play just fine, because I view it as increasing the costs for homeowners, so it just wasn't the right approach."

A yes vote, John Kerry (D-Mass.), also weighed in: "They don't own me and I'm in the Senate. I think it's unfortunate. I don't know what the rationale is behind people's votes. I don't know what motivates -- some senators don't like changing of a contract. Some senators don't like to have courts have the power. There are different reasons."

Millions of different reasons, perhaps.

Ryan Grim is the author of the forthcoming book This Is Your Country On Drugs: The Secret History of Getting High in America

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Comments

[vippy]

It would have been much cheaper and more successful if each citizen would have been paid $ 20,000 and our problem would have been solved. Congress needs to go, vote them all out, they are but selfish and out of touch. Why then do they have to lie about the unemployment numbers, when the
real number is around 20%? And I bet most of those are also facing foreclosure. But they keep printing money and Wall Street is dreaming up higher salaries and bonuses. Are you not fed up yet?

[ILRealEstateSpecialists]

Until we help homeowners from foreclosure we will not recover from this housing crisis. I do not understand why a plan has not been adopted that will address a solution to the problem. As a realtor specializing in the foreclosure market, I see there really is a simple solution to the problem. In order for people to keep their homes you can do three (3) things: Lower interest rates, extend the term, or reduce the principal balance on the loan to the current market value. By using all three of these this becomes a true Loan Modification plan to help keep people in their homes and not a Pre-payment plan to benefit the banks. Now there are all sorts of ways to encourage banks to lower principal balances. One way is to have banks retain an equity position (difference between what is owed and current market value) when a modification plan is created. If loan modification plans do not work then the next best alternative is a Short Sale. Banks should start accepting more Short Sales...

[kstuff]

Now that we, the people, own a significant part of Citibak, let's call a board meeting. Quit paying your credit card bills. During the Depression, Americans cheered bank robbers. At least they took action. Instead, the banks are robbing us over and over again.

[PalaceOfWisdom]

Of course allowing courts to alter mortgages going back would raise rates going forward. With the precedent set landers would have to raise rates on everyone going forward to brace themselves for a possible repeat every time there's a recession.
Home ownership is NOT an entitlement. If you took out an ARM with no thought to how you would pay later, you belong in the street. If you falsified your loan application you belong in prison. Nobody owes you a house. Congress should help responsible homeowners who have been laid off avoid foreclosure until they are back on their feet, nothing more.

[dcrinaz]

If a person took out an ARM, they had the expectation of a) either being able to refinance it, and usually were assured that they could, or b) selling the property. Of course, we had had net increases in the value of homes for decades, so there was no reason for buyers to believe that they could do either of these things in case there were problems. Personal income had also been growing for years, so many figured that by the time their ARM increased, they would have the money to pay. Of course, no one had figured on how badly Bush's policies had screwed up our economy, it wasn't apparent right away for various reasons.

But what homebuyers also did not know was that banks were giving loans to everyone and not even bothering to check of they lender could pay back. Banks were also giving multiple loans to housing speculators, causing more homes to be built than were needed and also causing artificial demand for houses, and thus an artificial rise in prices.

Now your average homeowner--and even sophisticated business individuals--were completely unaware of the banks' shenanigans.

So while you self-righteously proclaim that homeowners knew what they were getting into, so screw them, they in fact did not. The banks did, however, and it was cynical, greedy and caused this housing crisis. Perhaps you should use your mind and realize things are not as simplistic as your simple thinking would have you believe.

[dcrinaz]

Correction: the line "not even bothering to check of they lender could pay back" should read, "not even bothering to check of they BORROWER could pay back."

[TParrish]

There is even some evidence that the lenders were altering many applications to create the appearance of ability to pay. The old days of banks protecting themselves by closely scruitinizing applicants were, well, the old days.

[independant77]

What Bush policy are you pointing out

[independant77]

Please elaborate which policies you mean.

[dcrinaz]

P.S. I see your palace of wisdom---like most palaces---is full of empty space.

[dcrinaz]

By the way, to get fully educated on this issue, read the over 3000 blogs for this article. You'll hear all sides of the argument, but you will see after all, why bankruptcy reform was needed and why by not passing it, the Republicans in the Senate and the Sell-Out Dems screwed the American people.

[JD44Irish]

Frankly I'm not comfortable with the Government interfering in personal contracts. The freedom of choice gives us all the ability to make contracts, even bad ones.

Even if Banks gave mortgages under unfavorable terms, the buyer did not have to accept.

Were is the personal accountability?

[DebnJosh]

Never mind that the lenders committed blatant fraud against some of these people, right? What's good for the lenders apparently isn't good enough for the American people.

[dcrinaz]

The government interferes with personal contracts all the time. It's called bankruptcy, and it works fine, except for homeowners, who are not allowed to go bankrupt on their primary home. And though it should be a last resort, it does work.

[vippy]

That came right along with the lies of the government about our GDP, unemployment and the state of the union, which was deceitful as we find out now. You have to ask yourself why is it necessary for the government to give us fictitious numbers and why do we have a shadow government? Look back in history and see how corruption came straight out of the White House.

[steelwheels]

Want to see how bought and paid for, just look http://maplight.org/map/us/bill/82591/default/votes/votedetail-365817

[Praedor]

Congress is a criminal organization fully bought and paid for by big corporations and banks. Cramdown should be law. PERIOD.

These same whiny banks that fought against cram down are cramming down anyway! They foreclose, kick the family out, then auction the house for...what­?...that's right, CURRENT market value! They get the current market value in auction OR they literally bull doze the house into the ground and lose the entire thing.

What the HELL'S the point of fighting cramdown when you cramdown on yourself anyway? Spite?

[dcrinaz]

Fellow bloggers! Look, this article, by Ryan Grim, posted on May 1, 2009, has received over 3000 posts! Congratulations for making this the big issue it deserves to be! Don't give up! And thanks to Ryan Grim for such excellent and frank reporting!

[leapyearmark]

if that bill passed it would be criminal -- changing contracts midstream would be pathetic and one more intrusion on the free market system by Washington (one more we don't need). The govt is not your mom or dad to come to your rescue if you overpaid for a house, overestimated how much you could afford, assumed would go up 20% forever, and so forth. If this bill would have gone through you would have been able to clearly see why the tea parties were so passionate.
Ask frank adn Dodd to bail these people out as they started this whole mess by trying to "increae home ownership in this country" by alloing banks to loan to unsuitable potential homeowners. A noble cause but the free market should determine that, not anyone in Washington.

[HekmabaJuzimax]

The free market is one thing, but a free-for-all is another. The so-called "free market" is long overdue for a correction. Time to join the rest of the world.

[dcrinaz]

Trying to increase home ownership in this country" did not give license for banks to practice predatory lending, to ignore basic rules and principles about lending (like making sure that people have the income to pay their loans, or you don't give them the loan), to commit fraud, to give huge amounts of loans to speculators and to generally do everything in lending that no responsible lender would do. But they did. Borrowers, believing what lenders told them, went a long for the ride.

You are also ignore the fairness issue here: businesses and individuals change contracts midstream all the time. It is called bankruptcy, which is the law and has been since the founding of the United States. As a matter of fact, the bill that failed in the senate was an attempt to reinstate the law as it had been before 1978, when bankers convinced Congress to take away bankruptcy protection for homeowners and their home.

The housing mess was the banks' own doing, nobody forced them to do what they did.

[dcrinaz]

Did you all see the article on the stress tests and how 10 banks of 19 will still need federal money? I say NO MORE MONEY FOR THE BANKS UNTIL REAL BANKRUPTCY REFORM WITH CRAMDOWN IS PASSED AND HELPS ALL TROUBLED AMERICAN HOMEOWNERS!

[pmag88]

Hey, at least legislation hit the floor and people voted on it. At least we got to see a bit more of the inner workings of the big machine. At least we get an opportunity to ask tough questions of the politicians and the people in the industries in question. At least we get to juxtapose a statement from Durbin saying 'Bankers own the place', against one by Dorgan saying he doesn't really understand what that means. At least this gives us a rough idea of how much more work we have to do to get at the crux of the matter.

I don't want to war against politicians who are doing what they think is right for valid reasons, but I do I think that on this particular legislation, the nay votes by dems require much more fleshed out, fully qualified answers than the mumbo jumbo this article refers to. Maybe the bill was intentionally flawed because there isn't any good way to deal with this. Maybe it was just a bad bill. Maybe people are being bought off. Bottom line, the politicians need to explain in more detail what is going on, and if that doesn't happen, people WILL assume the worst and indeed we will make war against them and vote them out with extreme prejudice. You may not live in the state where these guys reside, but you can certainly send money and expend energy to help their political opponents defeat them in upcoming elections.

[Clayton139]

This is a (GREAT POST) ! Everyone should read this and adhere to it !
Just do it ! As they say !

[dcrinaz]

I think I will do exactly that. With the internet it is so easy to keep track of causes in other parts of the United States. And we need to help one another even if the help is needed far away!

[leapyearmark]

So because some Dems voted against this ridiculous bill they should be voted out? Oh my. Are those Dems now going to labeled the "party of NO"? I applaud them for voting logically and not simply the old "party line". Gives the rest of us some hope.
There no need to "flesh out" anything - they stated it clearly --> the bill sucked and they were not going to bail out the few at the expense of the many.

[HekmabaJuzimax]

Either they are with us, or they are against us. That was said by your hero, Mr. Bush. And now it seems the theory will be put into practice.

[ibsteve2u]

"I thought the 31 percent is an arbitrary number."???

Those responses all remind me of that commercial on TV; as if these people all needed a Twix, so they'd have a moment to think up a better lie.

[dcrinaz]

It wasn't arbitrary, it was a number that came about through analysis on the part of economists.

[leapyearmark]

and it turned out to be way to high a number - thanks Barney! you #$%^&*()

[leapyearmark]

home ownership was hovering in the 60% range for years and years -- it was what it was. Then Barney and crew started all this American Dream stuff and wanted to artificially boost it up to 70%. Now there was a reason it hovered around 60% -- some people can't afford a mortgage , house etc and rent until they can - not beforehand. There will always be a certain percentage of homeowners, renters, homeless, and so forth which may vary in minor degrees depending upon the economy etc - but the government shold learn from this. Allow the free market to take its natural course. Those who can afford will buy, those who can not will rent. Some who can afford may still rent. End of story.

[dcrinaz]

Again, leprosy, you have a very limited understanding of what was going on. Barney Frank is not the president of the United States. Nor is he CEO of a mortgage bank. There has been plenty of discussion that the legislation you referred to was not a contributing factor to housing and mortgage meltdown. It was the bad and even fraudulent lending practices committed by the banks in collusion with the home builders. Plain and simple. Barney Frank never told the banks to issue unsafe loans. Barney Frank never forced the banks to use subprime mortgages with ridiculous ARMs. the bigger problem was the lending to speculators that that banks did big time. He did not make the banks commit fraud or conduct predatory lending. ON the other hand Georgie Bush ordered his banking regulators to look the other way while the banks were committing their fraud. You really need to stop listening to Faux News and get some real news sometime. Or do facts make your head hurt too much?

[Jude55807]

Obama's words are coming back to haunt him., Obama said he would do this, why are these Democrat senators surprised? Probably because Obama is backtracking on a lot these days. Just this week "The Obama administration is moving toward reviving the military commission system for prosecuting Guantánamo detainees, which was a target of critics during the Bush administration, including Mr. Obama himself."

http://www.nytimes.com/2009/05/02/us/politics/02gitmo.htm

[leapyearmark]

Obama -- here watch my right hand while i f you with the left hand

[dcrinaz]

Gee, just 29 more comments and this blog hits 3,000 responses! Come on, guys, you can do it!

[Austrian School]

You got the headline wrong. It should read:

"In their own words: Why Dem Senators Stood up for Renters and Prospective Buyers"

A much more pleasant and optomistic headline, don't you think?

[fleaba]

And you figure this how? Renters are not renting the primary residence of the buyer?

[TheBender]

What?

[leapyearmark]

no, if it the PRIMARY residence, they would be living in it -- renters are living in someone's investment property (90% of the time or so)

[Insideman]

I bet if everyone stops paying their credit cards and mortgages, things would definitely change :)

[TheBender]

I vote to stop payig taxes.

[dcrinaz]

Taxes pay for your roads, schools, law enforcement, firefighters, air traffic control, water and waste management, parks, and so much more. You really want to stop paying taxes?