Recognizing a job well done

FRED BLOCHER/Kansas City Star

Wednesday, Congressman Barney Frank, Chairman of the House Financial Services Committee, and I recognized Kansas City’s own UMB and Commerce Bank for being named the highest rated banks in the continental United States.

Each year Forbes evaluates America’s 100 largest banks. The rankings are based on criteria that measured asset quality, capital adequacy and profitability. The rankings for 2009 name UMB the second-best bank in 2009 behind Bank of Hawaii while Commerce ranked third.

The Forbes rankings confirm what we have known here in Kansas City for decades. America’s strongest and most reliable banks are not on the coasts, they are in the heartland where common sense, hard work and exceptional service have been the foundations for UMB and Commerce Bank since the day they opened their doors.

Chairman Frank and I presented both bank Chairmen framed copies of Congressional Record statements delivered on the floor of the House of Representatives in honor of the employees, officers, directors and shareholders with congratulations on a job well done.

Helping Families Save Their Homes Act

Yesterday, I voted for a key piece of anti-foreclosure legislation, the Helping Families Save Their Homes Act of 2009 (H.R. 1106). The bill passed the House by a vote of 234 to 191.

The Helping Families Save Their Homes Act will put in place a key first piece of President Obama´s comprehensive Homeowner Affordability and Stability Plan. I believe it will help a great many families in our community stay in their homes. Before I go too much further on this bill, I would like to urge those of you who are in trouble with your mortgage to visit www.financialstability.gov to take an eligibility quiz for homeowners struggling to make their payments. It went live yesterday and should serve as a good first resource.

I have come to you each week for the last 6 months in this newsletter to talk to you about the dire economic situation we find ourselves in. The housing crisis is the root of the problem and until we stop the hemorrhaging we cannot hope to stabilize and rescue our economy.

On the floor yesterday, I told the story of one of our neighbors who was robbed by mortgage brokers behaving like criminals. Please take a moment to read about Sherrita Richardson here >>

Sherrita, a Kansas City bus driver with four children, found out that her home in the 3400 block of East 60th Street is worth half or less than half of what she paid for it because of an inflated appraisal.

Every 13 seconds, another American family loses their home to foreclosure. As of this morning, there were 5,228 homes in foreclosure in Jackson County, and another 523 in Cass County. Foreclosures uproot families and destroy neighborhoods. There are certainly plenty of people who knowingly got in over their heads, but foreclosures depress all our property values. You can be current on your loan and be doing all the right things, but each foreclosed home in the U.S. reduces nearby property values by as much as 9 percent.

The Helping Families Save Their Homes Act seeks to help the estimated 7- 9 million households facing possible foreclosure by including key incentives that encourage lenders to renegotiate affordable mortgages for homeowners who are underwater, at risk of foreclosure, and those nearing bankruptcy.

Specifically, the bill fixes the Hope for Homeowners program, implemented October 1, 2008, which was designed to get more families into affordable mortgages by reducing current fees that have discouraged lenders from voluntarily participating and offering new incentives for lenders to negotiate loans.

To further encourage participation in this program, the bill protects lenders from lawsuits for modifying loans. This will make reasonable loan modifications available to many more homeowners at risk of foreclosure.

To help families who have exhausted options for relief, the bill also allows bankruptcy judges to modify the terms of a loan for existing primary residence mortgages. This is what is known as the “cram-down” provision.

Currently, the mortgage for a primary residence cannot be modified in bankruptcy—unlike every other secured debt – including debts secured by second homes, investment properties, luxury yachts, and private jets. It gives families who own one home the same rights to keep their home as someone who owns two or three houses.

Stabilizing the housing market is central to restoring the American economy. We all stand to lose if we do not stop the steep decline in home prices.

An estimated 14 million homeowners in America owe more than their home is worth and many cannot refinance into an affordable mortgage.

Some homebuyers were able to make their mortgage payments until they lost their job or their income dropped. Others were victims of predatory lending by banks and are now stuck with unaffordable subprime mortgages, in danger of losing their home, through no fault of their own.

Either way, these homeowners now face foreclosure—a devastating event for a family and one that has negative implications for neighbors through depressed housing values, vacant homes, and a loss of tax revenue for local schools. Anything we can do to stop this cycle we have to pursue, or we will not find the bottom of this economy and begin our recovery.

Bad News and the Big 3

Over a half-million jobs — that is how many the economy lost in November. That is the worst one-month drop in over 30 years.

This morning, it was also announced that our nation's unemployment rate is 6.7% — the highest in 15 years. Hundreds of thousands more families will have a very difficult holiday season this year on top of the millions already out of work.

These new numbers come on the heels of a report from the Government Accountability Office (GAO) on the Treasury Department's implementation of the Troubled Asset Relief Program (TARP).

The GAO told Congress that the Treasury Department has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law - to increase lending. My committee has asked the Treasury repeatedly to track the impact of the taxpayer money. The Treasury has responded that it has no intention of doing so.

The GAO recommended that measures be developed to apply to how individual institutions are using their share of the $250 billion made available to them. In response the Treasury policy is to engage in "further discussions on general metrics for evaluating the overall success of the capital purchase program in addressing the purposes of the EESA."

So in the context of the very bad job losses last month and the refusal of Treasury to monitor the effectiveness of our last large taxpayer rescue package the Big 3 automakers came before our committee today to ask for $34 billion.

Here is what we know:

1. Without assistance of some sort, one or more of the Big 3 will be gone.
2. Locally we have 7,200 employees and thousands of auto retirees.
3. There is no assurance that government investment will save the industry.

Before Thanksgiving the CEOs came to Congress in private planes with a request for $25 billion of taxpayer money but no plan. Today they drove to Washington in hybrids with a plan in-hand and asked for $34 billion. That is some serious inflation.

Ford appears to be in the best shape of the three and may well weather the storm with very little assistance. The other two are in very bad shape and frankly I am not sure what the Congress is going to do at this point. That is the difficult part.

We have their plans, their testimony and their answers to some very difficult questions. The hearing was good and frustrating. It certainly went better than the last hearing, but I feel like we have heard all we are going to hear. It was frustrating, for me, because we really haven't made much progress on what we will do next. We need a plan and we need to vote on the financial mechanics to help the industry.

Our committee will work with the Banking Committee in the Senate as well as leaders of both chambers to craft a bill that can be passed quickly. Waiting helps no one. The longer we wait the fewer cars are bought (no one wants to buy a car from a company that may go under, even if they can get the loan) and the worse the problem gets.
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Two frustrating hearings

This was an interesting and frustrating week. The week began with some hope of getting explanations from Secretary Paulson and answers from the Big 3 auto executives. Neither promise was fulfilled completely.

Treasury Secretary Paulson, Federal Reserve Chairman Bernanke and FDIC Chairwoman Sheila Bair testified Tuesday morning in front of our Committee. Members, including me, were interested in hearing from this trio why, after expending half of the money allocated, more progress had not been made in loosening the credit markets.

We were also curious as to why some financial institutions are under the impression it is acceptable to use government-provided funds to pay dividends, continue excessive executive compensation and for acquiring other banks.

None of us expected that the Troubled Asset Relief Program would be a magic pill. We did not expect lenders to immediately start making loans again. However, we also did not expect and certainly did not intend for banks to be hoarding their government assistance or using it to further expansion schemes.

The concern we expressed, particularly to Secretary Paulson, was that it didn't seem unreasonable that financial institutions demonstrate SOME degree of responsibility to the American taxpayer whose investment in them was predicated on relieving the clogged credit markets.

I think that what we learned from the hearing is that we have to go back to work. If the financial institutions continue to behave irresponsibly, then we're going to redraft the Act to require them to act responsibly.

Additionally, we are frustrated that not near enough has been done to help keep homeowners in their homes. I think we made it clear that we believed that the FDIC Chairwoman, Shelia Bair, is on the right track with her proposed program to encourage refinancing of troubled mortgages by providing government guarantees. If we do not see movement toward her plan by the Treasury Secretary soon, I believe we will need to require it.

We saw a bit of the pressure we exerted this week paying off as Fannie Mae and Freddie Mac announced this morning they would freeze all foreclosures until after the holidays as they work to renegotiate troubled loans.

Progress has been made. However, I think we left no doubt in the mind of the Secretary and Fed Chairman that we had expected a great deal more progress for $300 billion and that changes would be needed.

As for the Big 3 executives...

I would not have believed it had someone told me before hand the hearing would go as poorly as it did. From the moment these three arrived in Washington via their private airplanes it was all down hill.

I don't mean to be too flippant about this, but if you are going to ask the government for $25 billion of the taxpayers money, it is very helpful to have 1) an explanation for why that amount is necessary and 2) a plan for how the money will save the industry.
These gentlemen provided neither.

Here's an example of what I mean, demonstrated in a question I asked:

CLEAVER: Why $25 billion? I mean why not 26? Are we going to divide three into 25?

ROBERT NARDELLI (CEO of Chrysler): Chrysler is asking for $7 billion.

ALAN MULALLY (CEO of Ford): Sir, it would be the rest based on the market share.

CLEAVER: This is - I mean we're just spending $25 billion loosely. I mean this is loosey goosey, whatever's left, I'll take.They seem to just be picking numbers out of a hat with no real clue as to how much is actually required to right the ship.

As I said last week, the automakers and our District are intertwined and should they go under it would be a disaster for us locally. Nationally, we are talking about 3 million workers who depend on making cars for employment. But the bottom line is, as much as I understand the need, Congress cannot commit billions of taxpayer dollars without first knowing how the automakers intend to use it to keep from sinking and how they are going to re-tool their industry to make it more green and more competitive.

As a result of the hearing this week, we have asked to see plans detailing exactly how the automakers would spend these loans which are due by December 2nd. With the plans in hand, we will return to session and revisit these loan requests by December 8th. I think this is a very reasonable and responsible approach with so much taxpayer money at stake.

Some explaining to do

This week, I returned to Washington to participate in hearings examining the progress the Treasury is (or is not) making to restructure mortgages allowing people to stay in their homes. In a nutshell: they are not yet doing enough, despite a substantial influx in Treasury money to help homeowners.

Treasury Secretary Paulson committed money from the rescue package in order to make financial institutions more financially sound and allow them to begin lending again. Part of the understanding is that the outlay of federal funds would in turn encourage lenders to renegotiate troubled mortgages. Three hundred billion has been spent, and significant progress has yet to be made.

Needless to say, the Financial Services Committee and frankly the American people have a few questions for Secretary Paulson. Next Tuesday we will have an opportunity to ask him directly as Secretary Paulson, Ben S. Bernanke, Chairman of the Federal Reserve and Sheila Bair, Chairman of the Federal Deposit Insurance Corporation will all testify in front of my Committee.

At about the same time this week that we were questioning bankers about why we weren't seeing more progress in re-writing mortgages, Secretary Paulson made some news of his own. In a press conference he surprised those of us charged with overseeing the $700 billion rescue package by saying he had changed his mind about the need to buy up the toxic assets that have frozen the credit markets.

On Wednesday, Paulson said the Treasury would now use funds to put more capital into the banks rather than buying up bad mortgage assets through the Troubled Asset Relief Program (TARP). I mention the section title of the $700 billion package to emphasize the Congress' intent with the bill — namely to buy troubled assets.

Paulson said that he believes his new plan is a "more powerful and quicker way to deal with the problem."

"Seven hundred billion [dollars] wouldn't go far enough in my judgment. So you get much more leverage by putting capital into the banks. What we were looking to do was to stabilize the system and encourage banks to lend more. And the quickest and most powerful way to do that was with capital."

Now, I am not an economist. So the new Paulson Plan may very well be what is needed.
However, his failure to alert Congress of his shift in strategy does not inspire confidence in the American people. When embarking on a plan meant to build confidence, it would be helpful if the government was all singing from the same hymnal.

There is another problem with the shift in strategy that goes beyond whether it works or not. If, say, after Congress appropriated funds to the Department of Housing and Urban Development, and rather than spending money on homes, the Secretary decided to buy airplanes — we would rightly take issue with that.

Secretary Paulson is right when he says the 509 page bill we passed gave him fairly wide latitude. But, the stated purpose of the rescue package is clear as day in the title — troubled assets.

As of this afternoon, the Treasury has yet to buy a single troubled asset with the $700 billion appropriated to do so. Not one.

Secretary Paulson and Chairman Bernanke will have some explaining to do on Tuesday.