Mel Watt

Mr. WATT

Mr. WATT. Mr. Chairman, I yield myself the balance of my time. I have listened to and acknowledged the concerns that are raised by the other side and by Mr. Perlmutter from our side about this provision. It is clear that certainty has value. But certainty when certainty is unfair and when you are trying to discourage a particular act such as steering a borrower to a higher priced loan, if you don't put in the bill the ability of people to get the actual damages that they incur as a result of being steered to a higher priced loan, then you are not going to deter the activity. Many unsavory people will treat this just as a cost of doing business because the reward for steering is so high that they can incur that risk for nine transactions and get rewarded and pay the cost of the risk on the one transaction that they might get caught on. So if you really want to deter people from steering to the highest cost loan, you've got to provide an effective remedy that deters them from doing that. That's all I am trying to do. If people don't engage in this activity, there are no remedies. We don't even need any remedies. But where they engage in an activity that we have acknowledged under the bill is an undesirable activity, we have outlawed it. We have said thou shalt not steer to a higher cost loan. If you don't provide a remedy that is commensurate with that, then what you are saying to the market is you don't really care. So I think this amendment is good, and I encourage my colleagues to support it.

Mr. WATT

Mr. WATT. Madam Chairman, this amendment, on its face, is very, very simple, although I expect there will be some controversy about it. The amendment simply changes one word. The word is ``or.'' We change the word to ``and'' in the bill instead. You would think that would be noncontroversial, but let me get into the effect of that. Currently, if an assignee of a mortgage has policies and procedures not to buy subprime loans that do not meet safe harbor provisions that are in this bill, or if the assignee is willing to cure such loans, the assignee has no liability until you get to a foreclosure situation. That's very complicated, I understand; but that's what the bill provides. The effect of the amendment would be to require the assignee to have policies and procedures in place and do certain things and be willing to cure the loan to avoid being liable for rescission. That's important because if you give the option to an assignee of either curing or having policies and practices that are responsible in place, an assignee can then just treat the cure as a cost of doing business, and it becomes an ineffective choice. But if they are obligated to both have the policies and procedures and protections in place, and be willing to cure the loan, then they are not going to exercise the option to do the least onerous one of those things. It is a simple provision, a simple change, although I understand the arguments against it. And I will, having created the framework and explained what we are trying to do, reserve the balance of my time.

Mr. WATT. Madam Chairman, I reserve the balance of my time.

Mr. WATT. Madam Chairman, I reserve the balance of my time.

Mr. WATT. Madam Chairman, I offer an amendment.

Mr. WATT. I yield myself the balance of the time, and I assure you, I won't use it. The arguments that have been made are absolutely correct with respect to 99 \44/100\ percent of the people operating in the market. These are not bad people. But this bill was drawn to get at that small percentage of the market that is out of control. And if you give that small percentage of the market the option of either doing some paperwork or curing, as opposed to having to do both of those things, I guarantee you they will take the option that is most cost beneficial to them. And that's what we've been trying to stop, those people in the marketplace who are out of control. And that's what this amendment is designed to do. For the rest of the market, it really won't have any impact at all because they're going to put procedures in place and they are going to be willing to cure, if that's the last resort. So, I think, unfortunately, there are players in this market that have been out of control. This bill is designed to deal with them, and this amendment would help disincentivize them being out of control without harming anybody else. I would encourage my colleagues to support it. Madam Chairman, I yield back the balance of my time.

Mr. WATT. Madam Chair, you may not have to recognize anybody in opposition to this amendment because I plan to offer it and then withdraw it. But I think I would be remiss not to discuss the issue because of two reasons: Number one, it needs to be discussed because of the very difficult, delicate balance that the Chair has been able to walk to get us to this point; and number two, to illustrate once again that when you allow good things to happen in the marketplace, some people in the marketplace will abuse them. And trying to get the right balance to encourage good things to happen in the marketplace and not discourage that from happening opens up, sometimes, the possibility that people who are not well intentioned will engage in activities that need to be prevented. And this is the classic case of that. Basically, the bill now presumes that we meet the ability to repay a loan and provide net tangible benefit to a borrower if it is not a subprime loan. If it is a prime loan in the marketplace right now, that interest rate is 8.25 percent, so anything below that we presume to be a good loan. The market now has done this. They've made available in the market a loan that defers interest and principal. And that is a good thing for about 90 percent of the people, maybe even more than that, who have the ability to do that. I'm the classic example of that. I have a loan in which I can defer for a period of time both the interest and the principal on the loan. But if you make that kind of loan available to somebody who doesn't have the income level that is sufficient to pay it, under this bill, they can't even go back and offer proof that you shouldn't have done that, because we presumed, irrefutably presumed, that this is a good loan. And so the amendment that I was trying to craft and offer would have tried to close that. The problem is, if I close it for the bad people, then I also close it for the good people. And so, as an alternative to proceeding with the amendment, I have convinced the Chair, I hope, that we will continue to work on this issue and find a way to stop the bad people from making these kinds of loans or abusing the process without penalizing the people who really deserve and should have these kinds of loans, which I acknowledged from the very beginning serve a useful place in the marketplace. I yield to the chairman of the committee.

Mr. WATT. And that's all I wish to have acknowledged, and to demonstrate to everybody who is listening, really, that this has been a difficult issue, because just about any kind of loan that can be made in the marketplace, somebody can benefit from. But when you have a loan that is particularly subject to being abused, you have to have rules to constrain it. Madam Chairman, I ask unanimous consent to withdraw my amendment.

Mr. WATT. Madam Chairman, my good friend Mr. Hensarling may be surprised to know that we actually agree very much with the spirit of what he is trying to do. And I am not sure that my amendment will absolutely cure all of the concerns we have with it, but it will certainly make it better, and we will continue to work on trying to really address the issue. We don't want anybody to walk in and give false information on an application for a loan. One of the reasons we fought so hard to protect State laws and not to preempt all State laws is because that would be fraud and we think it would be outrageous, it would be shyster. But as everything, there is another side to this, and I will illustrate it with a loan that I just recently closed myself, a loan that was made to me. I submitted the application. I submitted the financial information. And what happened after that was that because the lender wanted their own form, they took my information that I had submitted to them and put it on their own form. They handed it back to me in a stack of forms that I needed to sign, and I signed them. Now, what has happened in the marketplace much, much more than the gentleman would like to know is that when that second block of papers came back, somebody had put false information on that application because they knew this borrower was not going to qualify for the loan if they didn't fudge the borrower's income, if they didn't fudge the borrower's credit in some way. So it was not the borrower who gave the false information; it was somebody else in the chain. And that is what we have got to guard against. And that's what the basic bill is all about. Now, we don't have any problem holding people personally accountable for the information that they knowingly provide; but if somebody just sticks some documents in front of me after I have given them the right information and they go back and change the information or put it on another form and I just happened to sign it because I presumed that the lender I am dealing with or the broker I am dealing with is honorable, I shouldn't be held accountable for that. And my second-degree amendment helps to make that clearer. And I hope by the time this bill gets passed, we can make it absolutely clear that what Mr. Hensarling is trying to accomplish and what I am trying to accomplish get taken into account. Madam Chairman, I reserve the balance of my time.

Mr. WATT. Mr. Chairman, I claim time in opposition to the amendment.

Mr. WATT. Mr. Chairman, once again, Mr. Garrett has focused on an issue that we talked about earlier in the debate. I offered an amendment and withdrew it, and it related to this general section. Basically, what we have done is allowed the lenders to presume, if they meet certain conditions, that their loan will be considered a safe harbor loan and go into the secondary market without any complications. In certain kinds of loans, we have made that presumption rebuttable because there is still tremendous opportunity for abuse even if they meet all of the safe harbor requirements. In other instances, we have made the presumption irrebuttable, and it was on the irrebuttable part of that that I offered the amendment and withdrew it. This is on the rebuttable part. Now, the problem with Mr. Garrett's amendment is that if you take out this rebuttable presumption, then the presumption becomes irrebuttable for all kinds of loans, those that have risks, and those that don't have risks. So what does that mean to the average lay person when you create a rebuttable or irrebuttable presumption? An irrebuttable presumption makes it impossible for you ever to rebut it. Because it is irrebuttable, you can't even raise it anymore. A rebuttable presumption makes it possible, even though it is presumed, that you can still go and offer evidence that what is generally a fair loan turned out to be, in your particular case, an unfair loan. So the effect of Mr. Garrett's amendment would be to make it impossible ever for anybody to get into court and contest any of these loans. Because if you take out the rebuttable presumption, it becomes an irrebuttable presumption. We don't want that. I mean, that is where the marketplace is now. It is out of control. It has been out of control. While we are setting up a construct to make the market better, we don't want to pass a law that then sanctions going right back to where we are now. That is how we got here in the first place, the market was out of control. And the construct that we have set up allows people to buy mortgages in the secondary market and presume that they will be okay. But we don't want to set up a situation where it is impossible for anybody to go into the secondary market or against anybody and say under no circumstances will you be able to get liability. That is what Mr. Garrett would have you do. I think it would be very, very, very bad public policy. With that, I encourage opposition. Mr. Chairman, I reserve the balance of my time.

Mr. WATT. Mr. Chairman, I yield myself such time as I may consume.

Mr. WATT. I yield to the chairman.

Mr. WATT. I would just add to that, on the floor today time after time after time, I have said that the great, great, great majority of the lenders are abiding by the rules. It's not those lenders who created this crisis. It is those people who are operating outside the rules, and that is what we are trying to put a construct around that is workable to protect those who abide by the rules of the road without shielding those who will abuse the process. This amendment would allow that to happen. Mr. Chairman, I reserve the balance of my time.

Mr. WATT

Mr. WATT. Mr. Speaker, I rise in strong support of H.R. 3996, which will address one of the most unfair provisions in the tax code that imposes an alternative minimum tax on so many of my constituents to whom it was never intended to apply. To some of my constituents, including the retired couple that lives across the street from me, this is among the most critical issues they face. There is one specific tax provision being extended in this bill that I want to address specifically, the extension of the New Markets Tax Credit, NMTC, program. This tax program is critical to the revitalization of struggling communities and census tracts in our country that are in critical need of help. There is one critical problem with the NMTC program that needs to be addressed. The Financial Services Committee's Oversight and Investigations Subcommittee, which I chair, held a hearing on October 30 entitled ``Preserving and Expanding Minority Banks,'' to review unique challenges facing minority- and women-owned financial institutions. A real concern revealed at this hearing was that minority-owned financial institutions have not been receiving allocations of credits under the NMTC program. Over the life of the program, only six minority banks have received allocations under the NMTC program and in the last round of allocations, of 61 recipients, only one minority bank was awarded new markets tax credits. This represented just $120 million of a total of $3.9 billion in tax credits awarded. I believe that facilitating greater access to the NMTC program for minority and women-owned financial institutions will improve the program and help ensure the revitalization of low-income urban and rural areas. I appreciate the agreement of Chairman Rangel and Subcommittee Chairman Neal to work with me, and perhaps to have a joint hearing with our Financial Services Subcommittee, to explore effective ways to increase participation in the NMTC program for minority- and women-owned financial institutions.

Mr. WATT

Mr. WATT. Madam Speaker, Representative Brad Miller of North Carolina and I are pleased to join in this tribute to the Honorable Keith Holliday, who will soon be retiring as Mayor of Greensboro, NC. Mayor Holliday is a model public servant who served as a member of the Greensboro City Council from 1995 to 1999 and has served as Mayor since 2000. He has distinguished himself nationally, effectively leading Greensboro through major economic and political challenges, through economic redevelopment and through a renaissance of Greensboro's downtown. He has helped position greenways, parks, public art projects and other beautification initiatives on Greensboro's priority agenda and has focused on servicing an ever-expanding, diverse and multi-cultural population. Mayor Holliday has also been a committed and persuasive advocate for the International Civil Rights Center and Museum. Throughout the world, North Carolina is recognized as the birthplace of the sit-in movement and the International Civil Rights Center and Museum, the site of the original sit-ins, is being renovated and will be opening soon as a lasting tribute to the ``Greensboro Four.'' These four courageous students from North Carolina A&T State University led thousands of students and others who sat down at the F.W. Woolworth lunch counter in Greensboro, NC, to protest segregation and ultimately changed the human condition and struck a blow for human dignity, equality and justice for all. We applaud Mayor Holliday as he continues to raise his voice in support of the completion of the International Civil Rights Center and Museum so the city of Greensboro and the citizens of North Carolina and this Nation will always remember this great chapter in American history. We join in thanking Mayor Keith Holliday for his many years of exceptional public service.

Mr. WATT

Mr. WATT. Mr. Speaker, I yield back the balance of my time.

Mr. WATT. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 3678) to amend the Internet Tax Freedom Act to extend the moratorium on certain taxes relating to the Internet and to electronic commerce, as amended.

Mr. WATT. Mr. Speaker, I am pleased to yield such time as she may consume to the gentlewoman from California (Ms. Zoe Lofgren) who is the Chair of the Subcommittee on Immigration, Citizenship, Refugees, Border Security, and International Law, but has been an invaluable participant in the discussions that have led to this bill.

Mr. WATT. Mr. Speaker, I ask unanimous consent that all Members have 5 legislative days to revise and extend their remarks and include extraneous material on the bill under consideration.

Mr. WATT. Mr. Speaker, I yield myself such time as I may consume. H.R. 3678 is an excellent example of what can occur when we work together on both sides of the aisle to deal with highly complex issues, and I am evidently not alone in this observation. This bipartisan legislation is supported by industry groups such as the Don't Tax Our Web Coalition, government organizations such as the National Governors Association, the Federal Tax Administration, the National Conference of Mayors and the National Conference of State Legislatures, and supported by a wide range of labor and union groups. In sum, H.R. 3678 temporarily bans State and local taxes on Internet access, while minimizing the effect on State and local government ability to raise needed revenue and treat businesses fairly. The bill is pro-consumer, pro-innovation and pro-technology. It amends the Internet Tax Freedom Act in four key respects. First, it extends the moratorium on State and local taxes on Internet access for 4 years until November 1, 2011. The 4-year time frame will allow Congress to make any adjustments to the moratorium, if necessary, in light of development in the States or in technology, as Congress has done each time it has extended the original moratorium in 2001, in 2004, and in this bill. It will also allow sufficient time for business planning, while ensuring that everyone continues to have the benefit of access to the Internet tax free. Second, the bill extends for 4 years the grandfather provisions to preserve the legality of taxes imposed prior to the 1998 act, consistent with passed extensions. The bill also phases out new grandfathers that some States claim were created in the 2004 extension, while allowing States that issued public rulings before July 1, 2007, that are inconsistent with the foregoing rules to be held harmless until November 1, 2007. Third, the bill clarifies the treatment of gross receipts taxes which certain States have enacted in recent years in lieu of or as a supplement to general corporate income taxes. Like the general corporate income tax, these gross receipt taxes apply to nearly all large businesses, not just to Internet access providers. The bill clarifies that this form of general business tax is treated in the same fashion as a corporate income tax and is not covered by the moratorium as long as it is broadly imposed on businesses and is not discriminatory in its application to providers of communication services, Internet access, or telecommunications. Finally, in response to a number of concerns regarding the definition of Internet access in the current law, the bill clarifies the term to mean a service that enables a user to connect to the Internet. This new definition will not only prevent all tax-exempt content bundling but will also include closely related Internet communication services, such as e-mail and instant messaging. In addition, the bill amends the definition of ``telecommunications'' to include unregulated, nonutility telecommunications, such as cable service. I want to particularly thank Judiciary Committee Chairman Conyers, Ranking Member Smith, as well as Subcommittee Chairperson Sanchez and Ranking Member Cannon for their cooperative efforts in helping us get to this point in the process. H.R. 3678 is a good, strong bill that provides much-needed clarity to the communications and Internet industries, and strikes the right balance in addressing the needs of States and local governments, while helping keep Internet access affordable. I urge my colleagues on both sides of the aisle to join me in supporting this bill. Mr. Speaker, I reserve the balance of my time.

Mr. WATT. I reserve the balance of my time.

Mr. WATT. Mr. Speaker, I reserve the balance of my time.

Mr. WATT. Mr. Speaker, I yield the gentlewoman from California 2 minutes.

Mr. WATT. Mr. Speaker, I yield myself such time as I may consume to close the debate and to address some of the issues that have been raised. I hope my colleagues will stay around, since they want to know the rationale for the 4-year extension versus the permanent extension, and listen to the rationale, because there is both ``practical rationale'' and there is ``substantive rationale.'' Let me deal with the practical reasons first. This moratorium that currently exists will expire the last day of this month if we do not act. The Senate has not done anything yet, and in many ways has made it clear that a permanent moratorium would be ``dead on arrival'' in the Senate. If the Senate is not going to act on a permanent moratorium, for the House to pass a permanent moratorium, send it to the Senate, have the Senate reject that permanent moratorium, runs the risk that time will run out before the month's end and the moratorium will run out before the month's end. Mr. Speaker, I have heard the argument that we ought to make this permanent because this is stifling innovation. That strikes me as being like the argument that we ought to not tax anything because people are going to quit making money because there are taxes on the money that they make. I don't know anybody who, over all these years of threats that people have said to me people are going to quit making money if you don't quit taxing their money, I don't know anybody who has fallen prey to that kind of shortsighted attitude. I don't know anybody in the technology industry or in the innovation industry who has fallen prey to this notion that we are going to stop innovating just because there is a temporary moratorium on Internet access taxation as opposed to a permanent moratorium. The last time I checked, the definition of ``politics'' was that politics is the art of compromise. We are doing what is necessary to move a bill. We can stand here and rail against the idea of a good bill on the idea that we want a perfect bill, or we can pass this bill, which I presume all these people who are railing against it not being permanent are planning to vote against the temporary extension when we get to a vote on it. Mr. Speaker, I have heard this referred to as partisan politics. This is not partisan politics. We heard two Democrats get up and say they support a permanent moratorium. You have heard a number of Republicans say they support a permanent moratorium. There are people who don't support a permanent moratorium. A bunch of them are over there on the Senate side, and they have already made it clear if we deliver a bill over there, it's not coming back over here. So this is not partisan politics; it is practical politics. Understand the difference between partisan politics and practical politics. Now, I have told you the political reasons why this is a temporary moratorium. Let me tell you the substantive reasons that this is a temporary moratorium. I just want to go back and read what I said in my opening statement. Every time we have extended this moratorium, we have revised this moratorium. The last time we did it, we had left out a whole bunch of people in the telecommunications world who thought that they should have been included in the definition of the moratorium. If we had made it permanent, perhaps we would have just left it as faulty, not corrected it. The fact that this is not a permanent moratorium doesn't mean that we can't go back 2 years from now, 4 years from now, 1 year from now, next month, and do something different. Mr. Speaker, this is really not the end of the world that this is a temporary moratorium. This is the beginning of the world. We changed the moratorium in 2001, in 2004, and we will probably change it again, because every time we think we know the outer limits of the Internet, somebody comes along with something else that they can do on the Internet. If we made this permanent, as if we had all the answers about what the moratorium, what the Internet's capacity is going to be, presumably that would be the end of the discussion, because we would have made this permanent, gone on to other issues, and not been thinking about revisiting this and addressing whatever shortcomings we might have 4 years from now, as opposed to sometime in infinity out in the future. Mr. Speaker, I, for one, am not on the permanent moratorium bill. I stand here with integrity telling you that I think it would be a serious mistake to make this a permanent moratorium on Internet taxation, because we don't have a clue standing here today what the capacity of the Internet is. Four years from now everything in life may be being done on the Internet. We might have a virtual world out there and then we may not be able to tax anything under the moratorium. So we need to continue to look at this on a regular, systematic basis. This is not a cavalier decision that we have made. It is a practical, substantive, smart decision that we have made. I would request that my colleagues get off of this kind of ``letting the perfect be the enemy of the good'' notion, support this bill, and let's move on and extend this moratorium for 4 additional years. It is a good bill.