By Lori Montgomery
Washington Post Staff Writer
Thursday, May 8, 2008
President Bush vowed yesterday to veto a Democratic plan to rescue hundreds of thousands of homeowners at risk of foreclosure, charging that the measure would "reward speculators and lenders" while doing little to ease the nation's mortgage crisis.
"We are committed to a good housing bill that will help folks stay in their house," Bush told reporters after meeting at the White House with congressional Republicans. "I will veto the bill that's moving through the House today if it makes it to my desk."
The president's declaration surprised House Democrats, who were planning to vote late yesterday on the measure, part of a broad package of housing initiatives aimed at slowing the pace of foreclosures, unfreezing mortgage lending markets and halting the slide in home prices.
The chief author of the rescue plan, House Financial Services Committee Chairman Barney Frank (D-Mass.), has already made substantial changes to accommodate the administration's concerns and expected the bill to draw considerable Republican support.
Frank said a variety of administration officials and Federal Reserve Chairman Ben S. Bernanke have spoken favorably of the measure. Either "this is an internal debate going on" within the administration, Frank said, or the White House has decided "that the Republicans are in such bad shape that the only way to avert disaster in November is to tear down the Democrats, not let the Congress get credit for anything constructive."
Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) is working on a similar proposal with the senior Republican on his committee, Sen. Richard C. Shelby (R-Ala.), and plans to hold a drafting session Tuesday. Dodd said he was "terribly disappointed" by the veto threat.
"My hope is the president will rethink that position," Dodd said, noting that lenders are filing foreclosure proceedings against more than 7,000 homeowners a day. "Inaction is not acceptable."
At issue is a plan to help homeowners who are having trouble making mortgage payments but cannot sell or refinance because they owe their banks more than their homes are worth. As many as 10 million borrowers now have negative equity in their homes, and more could join them if home prices continue to fall. Such borrowers are at especially high risk of foreclosure, analysts said.
The Bush administration has taken steps to aid such borrowers, urging banks to forgive a portion of their loans and permitting the Federal Housing Administration to help them refinance into more affordable, government-backed loans. But those efforts have produced limited results.
Under Frank's proposal, the FHA would step more aggressively into the fray, offering to insure mortgages for even the least creditworthy borrowers if their banks will forgive a portion of the debt and help them stay in their homes. The bill could help as many as 500,000 homeowners, according to the Congressional Budget Office, enough to stabilize the housing market, Democrats hope.
Republican leaders in the House have derided the measure.
"What started as a genuine effort by Republicans to work with Democrats to stabilize and strengthen the current housing market has turned into a one-sided Democratic monologue about how best to bail out the individuals and lenders that caused the problem in the first place," House Minority Whip Roy Blunt (Mo.) said in a statement. "That's hardly fair to the millions of Americans who worked hard and paid their bills in full and on time."
The Bush administration has alternately criticized the plan and offered encouragement. Last week, for example, after Frank told reporters he'd heard that the White House had issued a veto threat, Treasury officials quickly called to reassure him. That same day, Treasury Secretary Henry M. Paulson Jr. told the Reuters news agency that the administration is "behind the objectives" in Frank's bill, adding "we have not issued a veto threat."
That changed late Tuesday, when the White House issued a formal statement threatening to veto Frank's bill. The measure "would force FHA and taxpayers to take on excessive risk and jeopardize FHA's financial solvency," the statement said.
The statement said more than a third of borrowers assisted under the program would be likely to default on their loans, according to CBO estimates, forcing the FHA to pay off their mortgages and take possession of their homes. "The $1.7 billion price tag would be passed on to taxpayers who are not participating in this new FHA program," the statement said. "This attempt to shift costs to taxpayers constitutes a bailout."
Despite the president's warning, Democrats expected Frank's bill to easily pass the House and move on to the Senate. With Americans growing increasingly concerned about the economy in general and the housing crisis in particular, several House Republicans said they might vote for the measure.
But it was unclear when that vote might take place. As the sunset yesterday, Republicans were using procedural maneuvers to block consideration of the bill and effectively shut down work in the House.