Tuesday, April 1, 2008

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on Housing Stimulus Legislation
Remarks as Delivered on the Senate Floor

Mr. President, I am delighted to come to the floor today to praise the Senate for the most recent action in approving the motion to proceed on the issue of the day in America, and that is the housing crisis, the mortgage crisis, and what has been happening to our homeowners, mortgage companies, and our communities.

I pay particular attention and thanks to Harry Reid of Nevada, the majority leader; Mitch McConnell of Kentucky, the minority leader; Chuck Schumer; Lamar Alexander; John Ensign; Chris Dodd; Richard Shelby; and a host of Members who came together, and instead of agreeing to disagree, agreed to agree and set a platform from which this Senate, in only the way the Senate can do it, can deliberate the most pressing issue of the day.

I thank them for incorporating and including me in those discussions, and I want to share one of the things I shared with them and what I think should be a key part of any solution we offer on behalf of the housing market and the mortgage crisis.

One of the good things about getting older--and I am 63--is that you have had a lot of experience, hopefully all of it good, but it is not all good. I was in the real estate business for 33 years before I came to the Senate, and I was in it in 1974 when we went through one of the worst housing recessions ever. I was also in it, thank goodness, in 1975 when a Democratic Congress and a Republican President, Gerald Ford, brought forward a tax credit bill to stimulate the housing market.

In 1975, we had a similar problem. We had gone through a period of easy credit and lousy underwriting, except it wasn't on the mortgage side, it was on the construction loan side. At banks around the country, if a guy came into the bank and had a pickup truck and a hammer, he qualified as a builder, and he went out and bought a lot and started building spec houses. Banks made the loans and even advanced some of the development costs. Some A and D lenders would loan 100 percent of the cost of the acquisition and 20 percent of the development--crazy underwriting. It led to a plethora of new houses being built but no buyers for these houses. The United States found itself in the position of having a 3-year supply of standing new inventory on the market and no buyers.

What happened? Values started declining, grass started growing, and vandalism started taking hold on the vacant houses. It was a horrible situation. The President and Congress came together and said: Why don't we stimulate the market to absorb these houses, get the buyers back into buying houses. We passed a $2,000 tax credit to any family who bought and occupied as their principal residence a single-family new house that had been built, not a resale or any other house, but a single-family new house that had been built and standing in inventory.

We passed that $2,000 credit which, to give some idea of perspective, was about 8 percent of the value of an average house at that particular time in the marketplace. What happened is overnight, buyers sitting on the sidelines came out. They bought the standing houses that had been vacant and unseen for months. Housing values stabilized and began to go up, the economy turned around, and we went out of a recession, into prosperity, absorbed the inventory, and we did not bail anybody out. We just motivated homebuyers to do what they do best, and that is buy the designated houses which were the problem.

Two months ago, I introduced a similar bill based exactly on that experience, except instead of $2,000, it was a $15,000 tax credit earned over 3 successive years, the first 3 years after the purchase, of any one of a category of three types of houses:

Category No. 1, a new house built unsold, vacant, and permitted prior to September of last year. Any builder in America who permitted a house before September of last year did so when times were good. There was no looming indication we were going to get into the problem we are in now. They got caught like a lot of these homeowners and junk mortgages got caught, subprime mortgages.

Second, a house that qualifies is a house that has been foreclosed upon, the foreclosure has been adjudicated, and it is owned by the lender or the lender's designated agent. That is a standing vacant house foreclosed on and up for resale.

The third category is any house in foreclosure pending adjudication. That means it is being advertised, a foreclosure notice has been posted, and the house will be foreclosed on but has not yet.

Any one of those three types of houses, which is where the growing inventory is, will be eligible for the buyer to earn a $15,000 tax credit allocated over the first 3 years in which they occupy the home. If it is a speculator in foreclosure, it does not qualify. If it is a speculator who is trying to buy, they don't get the tax credit. This is to stimulate houses being bought that are in trouble, owner occupied by principals who bought those houses, and it qualifies for people who will buy those houses, refinance them, pay off the loan, and live in them as their residence.

What is going to happen, if the Congress is able to come together and pass a tax credit proposal such as that, is we will instantly stimulate the housing market and the marketplace, and the consumers will begin absorbing the standing inventory that is in foreclosure or pending foreclosure or is new and has been sitting since September of last year. That is precisely where the problem is. That is precisely what needs to be absorbed.

There are a few people who said: What about people who have been making their payments and are not in trouble; why don't you get the credit for buying their house if they want to sell it? That is not where the problem is, No. 1. No. 2, they are suffering from all these vacant houses being out there as well because housing values are declining, appraised values are declining, equities are shrinking, and equity lines of credit are drying up. We need a focused, targeted absorption vehicle to see to it that the buying public solves our problem for us. That is the right way to do it.

One other feature of the proposal is the tax credit will only be available and able to be earned on a purchase of a designated property made between April 1, 2008, and March 31, 2009--a 1-year window of opportunity. That creates the urgency of the situation, it motivates people to get into the marketplace or lose that opportunity, and it will be a significant catalyst to the marketplace, solving a significant problem for the United States of America.

I encourage my colleagues on the Banking Committee. I appreciate their consideration of this proposal and this concept. I hope that when the bill comes to the floor either in the base bill or in the amendment process, we can address a past solution that worked and add it to a contemporary problem that was identical to what the problem was in 1974 and 1975.

I end where I began. I thank my Democratic friends and my Republican friends who came together and decided to make something work rather than figure out how we can just be against one another. Senator Schumer has been a catalyst in this effort, Senator Ensign, Senator Alexander, Senator Reid, obviously, Senator Dodd, and Senator Shelby. I pay tribute to Senator Tom Carper who talked with me over weeks about the proposal I just discussed and finding some way to bring it to the floor of the Senate and get it out there so we can address the problems that exist in Delaware, Missouri, Georgia, Nevada, and in all the 50 States over the United States of America.

I am privileged to be the author of the amendment. I will be proud to be part of a team that does not want to take credit but wants to get something done, put together a bipartisan bill that addresses the most contemporary problem today in the United States of America, and that is the housing crisis.