GWEN IFILL: As we reported earlier, the Bear Stearns rescue may have spurred the Senate into bipartisan action on a new proposal to help homeowners and homebuilders caught up in the current mortgage downturn. Under the deal, the government would ease some lending caps and provide tax breaks for homeowners struggling with foreclosure.
Here to discuss the details are the architects of the compromise: Democrat Chris Dodd of Connecticut is chairman of the Senate Banking Committee. And Senator Richard Shelby of Alabama is the ranking Republican.
Welcome to you both.
SEN. RICHARD SHELBY (R), Alabama: Thank you.
GWEN IFILL: Senator Dodd, when Congress left town a couple of weeks ago, and about a month ago, actually, a proposal like this went down to defeat. In fact, it couldn’t get the votes for debate on the Senate floor. What changed?
SEN. CHRIS DODD: Well, a number of things. I think you point out that the Bear Stearns-JPMorgan issue, which we’ll be talking about tomorrow at a hearing before the Banking Committee, I think had some motivation.
Clearly, the decline and the contagion effect, Gwen, this went beyond a housing foreclosure issue. It’s now spreading to other areas of the economy.
You may have seen the stories, or your viewers have, of the difficulty with student loans in the states of Michigan and Pennsylvania, car loans, the unemployment rates getting larger. Over 100,000 people have lost their jobs. Inflation rates are the highest they’ve been in years.
All of these factors, the accumulating factors — the fact that between 7,000 and 8,000 people a day are filing for foreclosure on their homes, that as many as 44 million to 50 million people could be adversely affected, while not directly with foreclosure, but declining value of the most important asset they have, that’s their home, where debt now is exceeding equity in far too many homes.
All of these factors have come together. And I think many Republicans who in the past have been hesitant about this decided this was a time for us to act and to try and find some common ground on these issues. And that’s what Senator Shelby and I were asked to do by our leaders and what we’ve been able to do over the last 24 hours.
GWEN IFILL: Senator Shelby, is that true? Did your Republican colleagues or colleagues of either party come back from their break and say, “This is all we’ve been hearing about at home and you’ve got to do something?”
SEN. RICHARD SHELBY: Well, I’m sure that was part of it, but part of it was something you alluded to earlier. When the Federal Reserve stepped in to staunch some bleeding on Wall Street, we figured it is time to staunch some bleeding in the housing market, which is hemorrhaging daily all over this country. And this is a first big step that we’re working together in a bipartisan way to do.
Aid, counseling for homeowners
GWEN IFILL: Senator Shelby, let me start with you by asking you about some of the details of this proposal, the compromise you've worked out, especially for home buyers, for people who actually own homes and are facing foreclosure, what would your proposal do to improve their situation?
SEN. RICHARD SHELBY: Well, first of all, dealing with foreclosure, we're going to put -- we're going to have a tax credit. We're working with Finance Committee, dealing with that. That will help.
We're also modernizing FHA, which will help people to refinance a lot of homes. We're dealing with some of the veterans issues, returning veterans here. We're dealing with the Community Development Block Grants, billions of dollars that will help others. And we're giving some authority to some of the states' housing people to step in, too.
This is only a beginning. Senator Dodd has said already that he would hold hearings on something that he's very interested in and that we think is complicated and we'll see where it goes.
GWEN IFILL: Senator Dodd, the Federal Housing Administration, as Senator Shelby was just alluding to, he talked about modernizing or changing the FHA? What would that do? And how would it take its effect?
SEN. CHRIS DODD: Well, one of the things we're doing here (inaudible) can raise the loan limits, so we'll cover as many people as possible in the country. Under some earlier limits, you would have excluded an awful lot of higher-cost states from participating in the FHA program. That's going to be very, very important, as well.
And providing that kind of assistance, which Senator Shelby just described, allowing for refinancing of a lot of these very troubled mortgages, people that are underwater, allowing them to get back on their feet again will be a major step in the right direction.
The mortgage revenue bond issue is a major assist, as well. That will be a real help to people, as well, out there getting refinancing. That will be a tremendous assistance to local housing authorities.
The assistance and counseling, it sometimes gets treated as sort of an afterthought, but one of the things we've learned -- I certainly heard this back in Connecticut last week when I talked to people -- I've got as many as 6,000 foreclosures in the city of Bridgeport, Connecticut, a state that's listed as the most affluent state in the country on per capita earnings, and yet here I have in the largest city of my state as many as 6,000 homes going into foreclosure.
We listened to homeowners that have been able to avoid foreclosure because they got good counseling from groups like ACORN, these nonprofit organizations that are providing that counseling.
And Senator Bond and I initially offered some $180 million for counseling. Senator Schumer and Patty Murray care deeply about this, as well. And so we're going to provide additional resources there.
The money going back to the Community Development Block Grant program, this will assist our communities. And every time you have a foreclosure in a one-square-block area, every other property declines by 1 percent immediately and crime rates go up by as much as 2 percent immediately.
Getting resources targeted back to our states and localities to allow our mayors and county supervisors to deal with these properties, to rehab them, put them back on the market again, could be of great help.
And then, of course, the idea of providing as much as a -- a significant tax credit for home buyers of foreclosed properties over two years we think will encourage new owners to step up and avoid the kind of blight and deterioration in value that can occur when you have as many foreclosed properties.
Those are some of these ideas. But I want to emphasize something Dick Shelby just said, Richard Shelby just said to you. This is a first step. It's the very first step of the year now we've taken together on this issue.
A lot more needs to be done, clearly, to restore confidence and optimism and get our economy and capital flowing again. And we're going to try and do that in these coming weeks, as well.
Bill stops short of a bailout
GWEN IFILL: Senator Shelby, can I ask you about something that doesn't seem to be in this agreement? And there was a proposal floating around to amend the bankruptcy code to allow judges to intervene and restructure some of these troubled mortgages. That doesn't seem to be anywhere in this agreement?
SEN. RICHARD SHELBY: Well, it's not in this agreement. There's a lot of opposition to it, and there are a lot of people for that. But I'm sure that that will surface on the floor, and it will be debated and voted on, but it's not part of this agreement.
GWEN IFILL: And you also say -- and Senator Dodd backed you up on this -- that this is the first step, this is the beginning. How do you tell the people who you represent that this is not a bailout, this is not rescuing people who are undeserving of government intervention?
SEN. RICHARD SHELBY: Well, thank you for your question, because the timing is excellent. An overwhelming majority of the people are making their mortgage payments; they're sacrificing; they're working coast to coast. But we have a lot of problems, deep problems in our housing market.
There was a lot of abuse. A lot of houses were oversold. A lot of people were probably put in houses they shouldn't be. But we're where we are today. We've got a financial problem through our financial system and we've got housing.
And what we're trying to say to the people, we're trying to stop the bleeding as much as we can to get the market working again. And I believe we will, and this is only a first step.
Government may yet step in
GWEN IFILL: So let's talk about the second step, if we can, Senator Dodd. What has to happen next? Assuming that this does fine on the Senate floor and that your compatriots in the House agree to most of it, what then has to happen to reassure people who are either caught in this position or could be in the future?
SEN. CHRIS DODD: Well, one of the issues -- and I thank Senator Shelby for alluding to this -- I think that we need to deal with -- and it is complicated. I don't see -- all of this is, for that matter.
But one of the things we need to do is establish a floor. Where is the bottom in all of this? We need to unleash capital. Capital is not flowing, and this problem is not contained, by the way, to the United States. But particularly here, how do we get capital flowing again?
It will not move until there's a certainty as to where that bottom or that floor is in the residential mortgage market.
So one of the ideas that we're talking about is an old idea. It's not new. It was tried in the past, in fact, during the Great Depression. In that case, the federal government actually bought highly distressed mortgages at a very discounted rate and then put people back into them for fixed periods of time. Actually, the government made some $14 million in that program many, many years ago.
We're not suggesting anything quite that elaborate. We're talking about an insurance program through the Federal Housing Administration, which would allow people to stay at a discounted rate, a haircut for the lenders, but the borrowers would have to pay the insurance, stay in the home, only a voluntary program, only one that would deal with owner-occupied residences.
If you have enough of those transactions, Gwen, then that will -- the people in the financial services sector will tell you that will help them determine what that floor and that bottom is. Once that occurs, then capital will begin to flow.
We're going to hold a couple of hearings on this. I'm going to invite others that are interested in this. Judd Gregg of New Hampshire has been very interested, as has Senator Shelby.
And we just want to make sure people understand it and it's working right. That is my hope to be our major next step to really make a difference in all of this.
GWEN IFILL: Is that...
SEN. RICHARD SHELBY: Gwen, the bottom line here is this is a first step that we hope will try to restore some confidence, knowing it's not going to be an all-cure to the housing market. It's complicated; it's deep. But in a bipartisan fashion, we're trying to step forward.
GWEN IFILL: Was the second step that Senator Dodd just outlined something you could imagine endorsing?
SEN. RICHARD SHELBY: Well, I wouldn't endorse it without hearings and see a lot of about it and how much it's going to cost and what it's going to do, but he's going to hold hearings on it, and I'm open-minded.
GWEN IFILL: OK. Senator Richard Shelby and Senator Chris Dodd, thank you both very much.
SEN. CHRIS DODD: Thank you, Gwen.