House Republicans Vote to End Homeowner Foreclosure Assistance
Garamendi Amendment to Reshape Reckless Wall Street Bonus Culture
that Helped Cause Great Recession Denied Vote on House Floor by GOP Majority
WASHINGTON, DC – Congressman John Garamendi (D-Walnut Creek, CA), who represents communities like Antioch, Oakley, and Fairfield hard hit by the subprime mortgage crisis, today voted against H.R. 830, a House Republican bill that ends assistance for homeowners trying to save their homes from foreclosure.
Congressman Garamendi introduced an amendment to the bill that addresses one of the major underlying causes of the subprime mortgage crisis and the Great Recession: Wall Street's broken bonus compensation system.
"We should be working to improve federal assistance for homeowners struggling to preserve their homes from foreclosure – not destroying the last recourse of thousands of homeowners,” said Congressman Garamendi. “I've been very vocal that we need to improve housing services at the Department of Housing and Urban Development. We need reform to save homes. This does the opposite. Don't eliminate this program. Make it work."
"I authored an amendment to this legislation that would have gone to the heart of the housing crisis: the perverse incentives of Wall Street's 'heads I win, tails you lose' bonus culture," Garamendi added. "My amendment ties new banking and financial sector employees to the products they create, requiring all bonuses to be paid in the securities bankers sell to American investors. These securities-backed bonuses would also be held over a period of a few years to make bankers less eager to hawk toxic assets, and my amendment prohibits these bonuses from being used to hedge against losses. Unfortunately, the House Republican leadership stopped this amendment from coming to the floor for a vote."
Congressman submitted Amendment #7 to H.R. 830, which would effectively require that Wall Street bonuses be paid in stock. By confronting the insatiable greed and reckless short term profiteering endemic in Wall Street's bonus culture, this amendment addresses one of the root causes of the subprime mortgage crisis.
"My amendment is inspired by reforms suggested by Dr. Nouriel Roubini, one of the few economists who predicted the housing crisis and Great Recession," continued Garamendi. "While House Republicans continue to pursue a spending policy that most economists believe will destroy hundreds of thousands of jobs and threaten America's recovery, I will continue working with my Democratic colleagues in pursuing sound policies advocated by the brightest minds in the field."
Congressman Garamendi's amendment to H.R. 830 addresses the foreclosure crisis by fixing Wall Street's bonus system. The amendment, based on recommendations by economist Dr. Nouriel Roubini in his book Crisis Economics, would require that the federal regulatory agencies for banking and financial institutions and for securities regulation jointly issue regulations that:
1. Require new employees to sign contracts stipulating that their bonus income be paid in the securities they have a hand in creating;
2. Require that any such bonuses paid be held in escrow for a period as may be necessary to determine whether such securities or obligations are toxic or not;
3. Require such escrow accounts to be portable so that an employee may change jobs without hindrance; and
4. Prohibit use of any such bonuses to hedge against losses.
Wall Street's bonus culture led to the abandonment of traditional banking standards and the practice of making risky bets on the trading of mortgage-backed securities. Because many of these mortgage backed securities were toxic, this practice led to a global financial crisis and the worst recession since the Great Depression.
The Federal Housing Administration (FHA) Refinance Program Termination Act, offered by Rep. Robert Dold (R-IL-10), would eliminate the FHA Refinance Program, which began on September 7, 2010, and is available until December 31, 2012. The program helps underwater borrowers by facilitating voluntary mortgage principal write-downs and refinancing the loans into a new stable FHA mortgage. It is one of four Obama Administration foreclosure prevention initiatives being targeted for elimination by House Republicans.