Administration 'Strongly Opposes' Democrats' Foreclosure-Relief Bill

The Bush administration "strongly opposes" a Democratic plan to rescue homeowners at risk of foreclosure, a top housing official said yesterday, offering the administration's clearest rejection of the proposal.

In a letter to lawmakers, Deputy Secretary of Housing and Urban Development Roy A. Bernardi called the plan to permit the Federal Housing Administration to help refinance as much as $300 billion in troubled mortgages unnecessary and irresponsible, saying it could saddle taxpayers with thousands of failing loans.

"This legislation may come at a cost to taxpayers who are not participating in the new program. An attempt to shift costs to taxpayers would constitute a bailout," Bernardi wrote. "We believe there are simpler and more targeted ways to accomplish the goals of the bill by relying on existing market forces and FHA practices."

The letter came as the House Financial Services Committee began detailed consideration of the bill, Washington's most aggressive proposal for easing the mortgage meltdown that is driving the nation toward a recession. Under the measure, the FHA would offer to insure failing mortgages if banks agree to forgive a portion of the loans to make them more affordable and to reflect plummeting home prices.

The panel's chairman, Barney Frank (D-Mass.), had hoped that the White House would support the plan. The administration has twice expanded FHA's role in addressing the housing crisis and recently announced that it would urge lenders to forgive some debt. But yesterday's letter, Frank said, initially struck him as a "veto threat."

"I thought we were moving together. Now I don't know where we are," Frank said. He added that administration officials might reconsider once the proposal is packaged with legislation that they support, including bills on FHA modernization and tougher oversight of mortgage-finance giants Fannie Mae and Freddie Mac.

Frank's committee is set to vote on the measure next week; a vote in the full House could come during the first week of May. Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said he expects to begin work on a similar measure by May 6.

But Bernardi's letter suggests that there is little room for compromise. To reach the most troubled homeowners, Democrats want to sharply relax eligibility standards for FHA loans, an idea "that would force the agency and taxpayers to take on excessive risk and would jeopardize its stability," Bernardi wrote. Democrats also want a new oversight board that could adjust FHA policies to respond to the housing crisis. Bernardi said such a board would "unnecessarily expand the role of government in the market" and "make the FHA program cumbersome and inefficient."

Bernardi questioned whether lenders would participate in a program that would require them to reduce the size of loan principals, as well as forgive fees and penalties.

Republicans on Frank's committee raised another objection, saying they could not vote for any plan that rewards irresponsible borrowers.

"For me and for many of my colleagues on this side of the aisle, the fundamental issue remains one of fairness," said Rep. Spencer Bachus (Ala.), the panel's ranking Republican. "I believe it will unfairly benefit a few homeowners, many investors and speculators, at the expense of millions of careful borrowers and renters."