Rescue Plan Leads Housing Package
Friday, May 2, 2008
A plan to rescue hundreds of thousands of homeowners at risk of foreclosure began moving through Congress yesterday, as lawmakers worked to shape an aggressive response to the nation's housing crisis.
Democratic leaders said the rescue plan, which yesterday cleared a key House committee, will form the core of a much broader housing bill that will include an overhaul of the Federal Housing Administration, stronger regulation of mortgage giants Fannie Mae and Freddie Mac, and a $7,500 tax credit for first-time homebuyers that aims to slow the fall of plunging home prices.
"I think we're in reach of a package that could have a very good impact on the housing market," said House Financial Services Committee Chairman Barney Frank (D-Mass.), the chief architect of the housing package. "This should be a signal to the system that significant help is on the way."
Republican leaders oppose key elements of the package, particularly the plan to aid troubled borrowers, many of whom willingly signed up for irresponsible loans. "We support relief for innocent victims. We're not in favor of a massive taxpayer-funded bailout for speculators and scam artists," said Michael Steel, spokesman for House Republican Leader John A. Boehner (Ohio). "We think Mr. Frank's bill goes too far."
But the package would include some top GOP priorities. The White House has been calling on Congress for months to complete an overhaul of the FHA, a division of the Department of Housing and Urban Development that is the nation's largest issuer of mortgage insurance. By combining items from the agendas of both parties, Democrats hope to attract support from some Republican lawmakers and, ultimately, President Bush.
White House spokesman Tony Fratto said the administration appreciates the gesture. "We also appreciate that the legislation won't include some things that we oppose, like funding to purchase foreclosed properties." But administration officials still "have concerns with the legislation," Fratto said, adding, "We're just going to have to take a closer look at it."
Democrats made some progress attracting GOP support yesterday. Frank's committee voted 46 to 21 to approve the homeowner rescue plan. Ten Republicans, many from states that have been battered by foreclosures in recent months, joined Democrats in voting to send the measure to the full House.
"I think it's important that we at least move the issue forward," said Rep. Jim Gerlach (R-Pa.), who voted for the bill despite concerns about its impact on taxpayers. The rising tide of foreclosures, he said, is "an important issue for our country and we need to move forward."
This week, the research firm RealtyTrac said the number of foreclosure filings rose 23 percent in the first quarter compared with the fourth quarter of 2007, and was 112 percent higher than a year ago. By some estimates, as many as 6.5 million borrowers could fall into foreclosure over the next five years.
Frank's rescue plan is aimed at helping the most distressed borrowers, who are at immediate risk of foreclosure in part because they owe the banks more than their homes are worth because of falling home prices. Under the proposal, the FHA would be authorized to insure mortgages for these borrowers -- regardless of their credit histories -- in hopes of encouraging lenders to forgive a portion of their debt, give them more affordable payments and keep them in their homes.
The measure would grant the FHA authority to insure an additional $300 billion worth of mortgages, nearly doubling its portfolio. That could help anywhere from a half a million to 2 million homeowners, according to various estimates. The FHA would not hold the loans, but would pay them off and take possession of the properties if the borrowers default.
Over the past two weeks, Frank has made changes to the bill to accommodate complaints from the White House and other Republicans. He dropped a provision that would have established an auction process through which lenders could transfer mortgages in bulk to FHA insurance, a mechanism the White House criticized as a magnet for bad loans.
The committee also adopted an amendment that bars homeowners who lied about their income or other key information on their current mortgages from obtaining FHA assistance. But it rejected Republican amendments that sought to exclude people with bad credit histories altogether.
Frank also plans to leave out of the housing package a measure to provide cities and states with $15 billion in grants and loans to purchase or rehabilitate foreclosed properties. The White House strongly opposes that idea, saying it would contribute to falling home prices and be unfair to responsible homeowners.
The full House plans to vote on the housing package next week. It will then move to the Senate, where the Senate Banking Committee is at work on similar measures.
Banking Committee Chairman Christopher J. Dodd (D-Conn.) had scheduled a drafting session for early next week. But he postponed it yesterday, saying he needed more time to negotiate with Republicans.
"We're trying to see if we can find common ground," said Sen. Richard C. Shelby (Ala.), the panel's senior Republican. "I'm not exuberant, but I'm hopeful."
Shelby, an advocate of far stricter regulation for Fannie Mae and Freddie Mac, said the talks will probably go on for another four or five days. "This is serious legislation and complicated," he said. "The worst thing we can do is a sham bill, one that Fannie Mae or Freddie Mac have too much input into."