Metavid

Video archive of the US Congress

Senate Proceeding on Apr 20th, 2010 :: 0:17:55 to 0:28:05
Total video length: 2 hours 40 minutes Stream Tools: Stream Overview | Edit Time

Note: MetaVid video transcripts may contain inaccuracies, help us build a more perfect archive

Download OptionsEmbed Video

Views:195 Duration: 0:10:10 Discussion

Previous speech: Next speech:

Johnny Isakson

0:17:51 to 0:18:11( Edit History Discussion )

Johnny Isakson: time should not impinge upon the republicans having a half-hour and the democrats having a half-hour. i would ask consent that be the case. the presiding officer: without objection. mr. isakson: i thank the leader, and i rise at a propitious time for what i'm to say because both the majority leader and the my my -- minority leader both addressed the pending legislation in terms of the financial bill that's coming out of the banking committee and

Johnny Isakson

0:17:55 to 0:28:05( Edit History Discussion )
Speech By: Johnny Isakson

Johnny Isakson

0:18:12 to 0:18:32( Edit History Discussion )

Johnny Isakson: also the desire by both of them for the bill to be one that is amendable and debatable on the floor. because i'm here today to talk specific about just one facet of the financial crisis and just one improvement that is to be made by this bill that needs to be carefully addressed to make su that we don't make or repeat a mistake that was made

Johnny Isakson

0:18:33 to 0:18:54( Edit History Discussion )

Johnny Isakson: in the 1990's at the failure of the s&l industry. i have a chart, or, madam president, i'd like to refer to for a moment. we've heard a lot about mortgages, and we all know right now if it wasn't for f.h.a., i it wasn't for v.a. insurance, it wasn't for the fed buying freddie and fannie paper, there wouldn't be much mortgage money available in the united states right now. it's all run away from the

Johnny Isakson

0:18:55 to 0:19:18( Edit History Discussion )

Johnny Isakson: united states because of the subprime crisis, and, in fact, because people are nervous about what happened in the financial markets with subprime securities. but during this crisis that we've been in between -- beginning, really, in 2005 and 2006 and going on until now, in my state of georgia -- and these numbers are specific to georgia but georgia's the 10th largest state in the united states -- you see here that of the

Johnny Isakson

0:19:19 to 0:19:40( Edit History Discussion )

Johnny Isakson: mortgages in default, totally in default or in foreclosure, it got as high as 8.2% for what i refer to as qualified mortgages. those are mortgages that were made to credit-worthy people that had good underwriting standards. those were good mortgages. well, up to 8.2%, or 1-10 of

Johnny Isakson

0:19:41 to 0:20:01( Edit History Discussion )

Johnny Isakson: those at apex, was either delinquent or pending foreclosure. but 24.7%, or what's known as subprime or nonqualified loans, were either in mortgage delinquency or in default. 3-1. the reason i show this chart is it demonstrates where the problem happened, not just on wall street but on main street

Johnny Isakson

0:20:02 to 0:20:22( Edit History Discussion )

Johnny Isakson: and that is in chasing higher yields, in pushing towards a desire for greater homeownership. credit standards got lax, loans became nonqualified loans. they carried a higher coupon rate or a higher interest rate but a much higher risk. and it's acknowledged by me and i think by most in terms of the housing crisis that we've been

Johnny Isakson

0:20:23 to 0:20:43( Edit History Discussion )

Johnny Isakson: on, the largest precipitating faor was in fact, shoddy underwriting, loose credit, and subprime mortgages. now, the lislation coming out of the banking committee is going to create something known as shared risk or lender liability in terms of the making of mortgage loans. now, i'll be the first to tell you i'm not on the banking committee. i haven't seen the financial

Johnny Isakson

0:20:44 to 0:21:04( Edit History Discussion )

Johnny Isakson: draft, so what i'm going to address is what i hope will happen, not what i know will happen. but what i hope the committee will understand is, in its requirement for shared risk being that the maker of mortgage retain 5% of that mortgage for its lifetime or until it's paid, is a significant amount of capital that's asked for an institution

Johnny Isakson

0:21:05 to 0:21:26( Edit History Discussion )

Johnny Isakson: to reserve. an impossible amoun i might add, for a mortgage broker "a mortgage banker, but not for an institutional learned. the problem is, there are no institutional lenders like saves and loans anymore. one should revisit what happened with the savings and loan crisis, the resolution trust corporation and the failure that took place in the late 1980's and late 1990's.

Johnny Isakson

0:21:27 to 0:21:47( Edit History Discussion )

Johnny Isakson: in america in the 1970's and 1980's, most of the mortgages made were made by lenders who didn't share the risk, they had 1100% of the risk. they were savings-and-loan associations that took deposits, paid a preferential rate of interest over banks by regulatory design to attract the capital and they held the mortgage in portfolio until it was paid. and that's not shared risk,

Johnny Isakson

0:21:48 to 0:22:08( Edit History Discussion )

Johnny Isakson: that's total risk. what were our foreclosure rates in the 1970's and 1980's, up until the end of the 1980's? very marginal at all. 1%, 2%, certainly not%, certainly not 12.7. whatever in the savings-and-loan is the federal government took away the interest preference to

Johnny Isakson

0:22:09 to 0:22:29( Edit History Discussion )

Johnny Isakson: pay between banks and s&l's so capital flowed out of the s&l's. that was number one. number two, because s&l's then needed to make more money on internal portfolio, we allowed, the governmental loud savings-and-loans to create service corporations which were subsidiaries to deviate from their original charter and

Johnny Isakson

0:22:30 to 0:22:50( Edit History Discussion )

Johnny Isakson: instead of allowing them to make home loans, to make commercial loans and developers. what happened? well, what happened is history. because we got off our mission, because we got off the risk, because we took our eye off the ball, the savings-and-loan industry across america failed. congress had to create the resolution trust corporation to dispose of bad assets around

Johnny Isakson

0:22:51 to 0:23:11( Edit History Discussion )

Johnny Isakson: the country. and we went through, up until now, the most severe recession we've ever been through. but this one is worse, this one's more pervasive, this one was called by a lot of financial certainly irregularities and a lot of poor oversight on our part as well as greed on the part of many lenders. what my hope is when we start fixing things with regard to

Johnny Isakson

0:23:12 to 0:23:32( Edit History Discussion )

Johnny Isakson: mortgages, we will recognize that shared risk is not going to solve any problem if 100% risk didn't solve it in the late 1980's. what's going to solve the problem is for us to have some reasonable standards of required underwriting that are an insulator from institutions making bad loans unless they take the risk. i'm suggesting that we define

Johnny Isakson

0:23:33 to 0:23:53( Edit History Discussion )

Johnny Isakson: what is a qualified loan tt would not be subject to shared risk and what is a loan that would be subject to it. for example, what would a qualified mortgage be? and i was in this business for a long time. when i started in the business in the 1960's through 1980's, you could borrow twice your annual income. you couldn't have a monthly

Johnny Isakson

0:23:54 to 0:24:14( Edit History Discussion )

Johnny Isakson: payment higher than 25% of your take take-hoe became and your total debts a year or longer couldn't exceed 33% of your gross income. that was reasonable spurned writing. what were our foreclosure rates then? 2%, 1.5, in the mid-1980's. but certainly nothing like we've had in the 24.7% and 18.2%. what's a quul tied loan?

Johnny Isakson

0:24:15 to 0:24:35( Edit History Discussion )

Johnny Isakson: it's one that requires full documentation so you really do have to have a job, so the boss verifies your job, so the credit agency actually verifies your credit, so you actual have a down payment, you don't have down payment assistance or some now, you see it, now you don't loan. no-interest loans. everybody knows you're not making an investment if you're not paying the debt servi and

Johnny Isakson

0:24:36 to 0:24:56( Edit History Discussion )

Johnny Isakson: only paying the principal. interest-only loans were a bad idea whose time came and it's went. it may be good for certain forms of commercial investment but not for residential. no balloon payments. one of the biggest problems with these foreclosures were good people were loaned money with shoddy underwriting that this balloon payments in three, five or seven years. they didn't know what a balloon.

Johnny Isakson

0:24:57 to 0:25:20( Edit History Discussion )

Johnny Isakson: they thought a balloon is something that flew in the air. what a bool loon is when the whole principal comes when it wants and you're subject to the ability to refinance. that's not qualified loan. that's a high-risk gain. no negative am torizion. that's a bad idea that came and really left.

Johnny Isakson

0:25:21 to 0:25:46( Edit History Discussion )

Johnny Isakson: at the end of the year, you owed more, not less. that's wrong. that was predicated upon rapid inflation or rapid appreciation, which isn't always going to happen. and ten requiring people to carry private mortgage -- and then requiring people to carry private mortgage insurance on their loan ifs they exceed 80% of loan to value on the loan. a normal practical until we got

Johnny Isakson

0:25:49 to 0:26:09( Edit History Discussion )

Johnny Isakson: into loosey-goosy. we would attract all the money towards qualified loans underwritten like we did them in the good old days and then put the shared risk retention on those loans that are not well underwritten, make the mortgage broker or the investment banker on wall street hold 5% of an investment that they sell because it didn't meet these qualifications. what would happen?

Johnny Isakson

0:26:10 to 0:26:31( Edit History Discussion )

Johnny Isakson: they wouldn't do it because they wouldn't hold the money. it would have prevented what has been alleged, one of the brokerage houses did already. they'd never short something and bet on it failing if they had a piece of it. they'd only do it if you had the piece of it and they didn't. so i think it's very important when we get into this entire suggestion or this entire regulation or reregulation of

Johnny Isakson

0:26:32 to 0:26:52( Edit History Discussion )

Johnny Isakson: the financial industries that we also recognize we have some obligations to correct some of the mistakes the government made itself in the past that caused the problem in the s&l's in the 1980's and with mortgages, nonqualified mortgages in the 1990's. what i'm suggesting, very simply, is this. let's take those things that are tried and true, not things we think will work but things we know will work.

Johnny Isakson

0:26:53 to 0:27:13( Edit History Discussion )

Johnny Isakson: let's make them the gold standard. let's make them the qualification for the attraction of money into mortgages to fund the homes of the american people. and then let's say to those that want to take a risky loan, let's say to those who want to have shoddy underwriting, let's say to those who want to make a quick return and get out before the dollar comes due, they're going to have to take the risk.

Johnny Isakson

0:27:14 to 0:27:34( Edit History Discussion )

Johnny Isakson: shared responsibility or shared risk is precisely right as an insurance policy to protect against that, but the unintended consequence of shared risk on a qualified, well underwritten loan is a higher interest rate for the consumer and less attraction of capital for the individuals who -- t form those loans to fund the housing purchases of america, which

Johnny Isakson

0:27:35 to 0:27:56( Edit History Discussion )

Johnny Isakson: ultimately leads the government to do with freddie and fannie what it did before, force it to make loans it shouldn't, force the government, the taxpayer, to be at risk in part on those loans and bring us back to another period like the s&l collapse or, later, like the financial markets collapse of the late -- last couple of years. there will be another one in the future if we don't recognize the need to make qualified loans

Johnny Isakson

0:27:57 to 0:28:05( Edit History Discussion )

Johnny Isakson: well underwritten, do it like we did in the good old days when america flourished, our foreclosure rates were low and homeownership and housing was i

Personal tools

MetaVid is a non-profit project of UC Santa Cruz and the Sunlight Foundation. Learn more About MetaVid

The C-SPAN logo and other servicemarks that may be found in video content are the property of their respective trademark holders. None of these trademark holders are affiliated with Metavid