Housing Woes Put Bush, Hill At Odds
Wednesday, February 27, 2008
Congressional leaders yesterday gathered support for aggressive changes to bankruptcy laws that would help troubled homeowners, even as the Bush administration threatened to veto the plan and emphasized its opposition to any program that would risk tax dollars.
Democrats are calling for the government to do more than what the administration has done to date. They propose a range of initiatives that include the purchase of troubled mortgage securities by a federal agency and the empowering of bankruptcy judges to change the terms of high-interest loans held by homeowners facing foreclosure.
But the administration said that changing mortgage terms retroactively for a select group of troubled borrowers would only add to lenders' woes and lead to higher mortgage rates for everyone.
The clash highlighted the sharp differences between Democrats and the Bush administration over how to solve the nation's worst mortgage crisis since the Great Depression.
"Homeowners at risk of foreclosure are floating 50 feet from shore, and the Bush administration has thrown them a 30-foot rope," said Sen. Richard J. Durbin (D-Ill.), the author of a proposal that would allow bankruptcy judges to change the interest rates on subprime, adjustable and other nontraditional loans for homeowners facing foreclosure.
The White House and Treasury Department officials took pains yesterday to communicate a broader message, aimed at Capitol Hill and Wall Street: The administration would oppose the use of tax dollars to rescue banks, investors and homebuyers who made foolish financial decisions. Instead, it is counting on a plan that calls for the banking industry to voluntarily work out new loans with homeowners.
"We shouldn't be bailing out banks and investors, and our focus is on the homeowners," said Robert Steel, undersecretary for domestic finance at the Treasury Department. "And some of these programs seem to be bailing out banks and investors."
That position puts the administration at odds with some of its own allies who want a more vigorous response, including congressional Republicans from states suffering severe housing downturns and some of the biggest players in the ailing financial sector.
The Mortgage Bankers Association, for example, has opposed the bankruptcy measure but hoped that the government would buy distressed mortgage securities.
Senate Democrats say there are enough Republicans willing to break ranks with the White House to allow debate on some of the proposals.
Sen. Arlen Specter (R-Pa.), whose state faces numerous foreclosures, has proposed legislation that goes beyond what the White House would tolerate. Specter wants to give bankruptcy judges the authority to roll back rates on variable-interest loans, but he is proposing a more limited plan than Durbin's.
Other leading proposals by Democrats include expanding the Federal Housing Administration's capacity to buy distressed mortgage securities from Wall Street banks at extreme discounts and appropriating $4 billion to state and local governments for the redevelopment of homes in foreclosure.