New Ideas In Congress, But Not All Have Traction

Distress in the mortgage market is generating a wave of relief bills on Capitol Hill, including one that would allow homeowners to tap into their retirement accounts -- penalty-free -- to bring their loans current or to refinance.

However, one major reform bill appears stuck in neutral: the Federal Housing Administration Modernization Act, which would raise loan limits in high-cost areas of California and the East Coast and reduce required down payments. It is considered a crucial relief measure for consumers who need to refinance out of adjustable-rate loans into lower-cost, fixed-rate mortgages. Approved by the Senate Banking Committee on Sept. 19, it was the subject of bold promises for quick passage. But it hasn't been heard of since.

The pension-tapping plan for delinquent homeowners was introduced Oct. 19 by Sen. Norm Coleman (R-Minn.). The Home Ownership Mortgage Emergency Act would allow certain borrowers who are 60 days or more behind on their payments to withdraw up to $100,000 penalty-free from their retirement accounts. The money could be used to bring their loans current to avoid foreclosure or refinance into more affordable loans.

Borrowers would avoid the usual 10 percent federal tax penalties on early pension distributions as long as they paid back the withdrawn amounts within three years. The bill restricts this benefit to joint tax filers with adjusted gross incomes of $166,000 or less, or $114,000 for single filers. The assistance plan would be temporary, terminating at the end of 2009. Only mortgages on owner-occupied principal residences would be eligible, to excluse investors and speculators.

The idea, according to Coleman, is "to provide relief to the folks most in need -- middle- and lower-income homeowners," rather than to higher-income households, which may have access to other resources to avoid foreclosure. Coleman's proposal drew immediate support from the lending industry. Jonathan L. Kempner, president and chief executive of the Mortgage Bankers Association, said, "This is the kind of flexible, creative solution that will help many delinquent borrowers," enabling them to use their own financial resources to pull themselves out of mortgage trouble.

Another key piece of legislation introduced in mid-October is also aimed at fixing the mess in the mortgage market. Sponsored by Rep. Paul E. Kanjorski (D-Pa.), the Escrow, Appraisal and Mortgage Servicing Improvements Act would ban lender or broker interference in appraisers' valuations and would require subprime mortgages to carry escrow accounts to handle property tax and insurance payments.

The bill would impose penalties up to $20,000 per violation on anyone who uses intimidation, threats, bribes or other means to influence an appraiser's valuation of a home. It would also guarantee buyers access to all appraisals performed on properties in purchase transactions -- not just the highest ones that loan officers use to close the deal.

Kanjorski's bill is expected to be rolled into an omnibus anti-predatory-lending bill introduced Oct. 22 by Barney Frank (D-Mass.), chairman of the House Financial Services Committee, that would require all mortgage loan officers to be licensed and registered and would require them to be certain that loan applicants have the financial ability to repay the amount they are borrowing.

The FHA Modernization Act passed the full House and the Senate Banking Committee in September but has since dropped off the radar screen. That is in spite of strong promises by Banking Committee Chairman Christopher J. Dodd (D-Conn.) to rush it to the Senate floor for quick action.

Dodd, who is running for the Democratic nomination for president and who co-sponsored the FHA legislation, pledged Sept. 19 to "fight for swift passage so that homeowners can get the relief they deserve." On Oct. 3, Dodd also joined Senate Majority Leader Harry M. Reid (Nev.) and House Speaker Nancy Pelosi (Calif.) at a news conference in calling for an emergency appointment of a "mortgage czar" by President Bush to respond to rising delinquencies and foreclosures.

But more than a month after committee passage by a 20-to-1 bipartisan vote, the Senate FHA bill doesn't even have a number and has not been sent to the majority leader's office for scheduling a floor vote. A spokesman for Dodd, Marvin Fast, said committee staff work on the bill is underway, but he had no explanation about what happened to earlier promises of quick action to aid homeowners in distress.

Ken Harney's e-mail address iskenharney@earthlink.net.