January 29, 2008


WASHINGTON, DC – Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, today spoke on the Senate floor about ways to stimulate the weakened U.S. economy. Dodd, who has repeatedly tied the recent economic downfall to the foreclosure crisis, has urged Congressional leaders to incorporate provisions that deal with the housing crisis in any stimulus bill they present to the President. Dodd will hold a hearing on this issue on Thursday. Below are his remarks as prepared: Mr. PRESIDENT: I rise today to discuss the challenges that our nation’s economy is facing. Last night, the President called this a period of economic uncertainty. While I agree that we are in an uncertain period, what we know with some certainty is that the current economic situation is more than merely a “slowdown” or a “downturn”. It’s more, even, than a mere recession or near-recession. Instead, it is a crisis of confidence among consumers and investors. Consumers are fearful of borrowing and spending. Investors are fearful of lending. Financial transactions which generate new businesses and new jobs are shrinking in number and size. The incoming economic data shows how serious the problem is. Yesterday the Commerce Department reported that the sale of new homes fell again in December, reaching a twelve-year low. Retail sales were down and unemployment was up significantly in December. Credit card delinquencies are on the rise – as consumers find themselves increasingly unable to tap the equity in their homes to help pay down credit card and other bills. Lastly, inflation increased by 4.1 percent last year – the largest increase in 17 years, driven mainly by the rising costs of energy, food, and health care. Industrial production is falling and we have been haemorrhaging jobs in the manufacturing sector. Our economy is clearly facing more than “uncertainty.” It is facing significant challenges to our nation’s future economic growth and prosperity. The most important step that we can take right now is act to restore consumer and investor confidence. Unlike past recessions and slowdowns, the epicenter of this economic crisis is the housing crisis. Housing starts are at their lowest levels in a quarter-century. Home prices declined last year nation-wide by 6 percent, and are expected to decline again this year. That would be the first time since the Great Depression that national home prices have dropped two years in a row. This crisis stems above all from the virtual collapse of the housing market. That collapse was triggered by what Treasury Secretary Paulson himself has called “bad lending practices”. These are lending practices that no sensible banker would ever engage in. Reckless, careless, and sometimes unscrupulous actors in the mortgage lending industry essentially allowed loans to be made that they knew hard-working, law-abiding borrowers would not be able to re-pay. And they engaged in practices that the Federal Reserve and the Bush Administration did absolutely nothing to effectively stop. As a result, foreclosures are at record levels, the value of people’s homes are declining, and the tax base for state and local governments is shrinking. A year ago, I chaired the first hearing in the Congress on the subject of predatory lending. I talked then about the possibility that more than 2 million Americans could lose their homes as a result of such lending. Some scoffed at that prediction. Well, no one is scoffing now. Today, foreclosure rates persist at record levels. Estimates are that foreclosures will continue to climb for most of this year, dip briefly, then begin to rise again. The catalyst of the current economic crisis is the housing crisis. And the face of the housing crisis is the foreclosure crisis. Therefore, in my view, any short-term stimulus package should include measures that address the causes and symptoms of the foreclosure crisis head-on. I want to indicate again that I am very supportive of the work that my colleagues on the House side, Speaker Pelosi and her leadership team, together with Minority Leader Boehner, have done to format the outlines of a stimulus plan that the Administration can support. I know that Senator Baucus has announced some of the changes that he would like to see in the stimulus and is preparing to mark–up these important changes, including the extension of unemployment insurance to workers that have been out of work for more than 6 months as a result of the weakening economy. I look forward to working with my colleagues to continue to improve the stimulus package so that we can restore confidence and improve our nation’s economy. Specifically, with respect to housing, I am pleased to note that there were elements in the announced House package that address the housing market, namely a temporary increase in the conforming loan limits for the GSEs and also for the FHA program. Increasing these loan limits will help restore confidence and liquidity into the housing market, where interest rates have skyrocketed for non-conforming loans due to the current problems. These steps will also allow millions of middle class American who live in areas of the country where the value of an average house is far above the existing conforming loan limits to participate and reap the benefits from having a conforming loan. I have supported both of these measures and have also worked very closely with my colleague and Ranking Member on the Banking Committee, Senator Shelby, to draft and pass a more broad FHA modernization legislation through the Senate. That legislation passed this body last month by a vote of 93 to 1. In that regard, I want to acknowledge the assistance of the Majority Leader and Senator Schumer in bringing this bill to a vote. We still need to enact comprehensive FHA reform and I remain dedicated to making this happen in the very near term. These are good and needed steps. But we must go farther to restore the sense of confidence and optimism in our housing industry and our overall economy that are so vitally important to creating lasting prosperity for the greatest number of Americans. The work of the President and the Congress to right our nation’s economic ship will not end with the enactment of a stimulus package. On the contrary, it will have barely begun. There are other important measures that we can and should take to address the problems in the housing market and the economy that I want to briefly discuss. In the short-term, we need to increase funding for the Community Development Block Grant (CDBG) program for foreclosure mitigation. CDBG is a tried and true program. We should use it to direct $10 billion to local governments to renovate and resell the foreclosed and abandoned homes that are decimating many communities. Foreclosed and abandoned homes are devastating many communities around the country. They lead to a cycle of disinvestment, crime, falling property values and property tax collections, thereby leading to service cuts and further disinvestment. Investment in CDBG can help stop this devastating process. In the medium-term, we need a temporary apparatus to mitigate foreclosures. I am working on a proposal to create a Homeownership Preservation Corporation which would purchase from lenders and investors mortgages that are at risk of foreclosure. Lenders and investors would get bought out at a better price than if they foreclosed. And borrowers would get a new, affordable mortgage. This was done in the Depression very successfully – at no cost to the government. Under this concept, no one gets “bailed out”. Everyone shares in the pain of the housing bust. But at the same time, a market-based mechanism is established that can restore confidence to lenders and investors, and give innocent homeowners a chance to save their homes. In the long-term, we need to end predatory lending practices. I introduced a bill late in the fall that will crack down on these practices and help restore consumer and investor confidence in the market. 15 of you have already cosponsored it and others are welcome to do the same. In addition to the problems in our housing market, we also have tremendous challenges and opportunities with respect to our nation’s aging infrastructure. In the short-term we need to include funding for states and localities to start projects that are already ready to go, including existing highway and transit maintenance projects and other infrastructure projects that can be done quickly. There are a long list of highway and transit projects that are important to creating jobs today and to strengthening our nation’s economic future. These projects will boost employment in the construction and manufacturing sectors, which are those that have been hardest hit in the recent economic downturn. I intend to work for and support an immediate investment in transit, highway and other infrastructure projects. In the long-term we need to renew and reinvent our infrastructure. This is no small task, but it is critically important to putting people to work and modernizing the economy for future generations. I have worked with my colleague Senator Hagel in introducing legislation to authorize a National Infrastructure Bank to address some of these challenges and I look forward to working with him and others in this chamber to do that. In conclusion, Mr. President, the package that the President and the House leaders laid out is a good one. It addresses some of the critical problems that our economy is facing, particularly within the housing market. But more needs to be done and I look forward to working with my friend and Ranking Member, Sen. Shelby, as well as with our other Senate colleagues to strengthen this package and this economy, and confront this downturn appropriately, expeditiously and intelligently, so that the American people can enjoy the prosperity that we know we are capable of creating. Mr. President, I yield the floor.