In a Fix, GOP Drags Its Feet

By Steven Pearlstein
Wednesday, May 14, 2008

It's been about a year since the outlines of the mortgage crisis became clear, and over that time, many powerful interests have been forced to alter some cherished and long-held views.

The housing industrial complex -- from brokers to investment bankers -- has acknowledged the need for better regulation and oversight of its underwriting, marketing and financing practices.

Economic conservatives have conceded that the crisis cannot be handled by markets alone and that government intervention is sometimes necessary to prevent a housing meltdown from taking down the entire economy.

Fannie Mae and Freddie Mac, the 800-pound gorillas of mortgage finance, have accepted that they will have to live with a strong new regulator that has broad powers.

At the same time, critics of Fan and Fred now acknowledge that these government-sponsored but privately owned hybrids serve a vital role in providing liquidity to the mortgage market.

All of which makes it particularly curious why Congress and the Bush administration still cannot seem to come together on urgent legislation to deal with a trillion-dollar mortgage debacle that threatens U.S. and global economies.

We'll have a pretty good idea whether the legislative train has run off the tracks tomorrow when the Senate Banking Committee is scheduled to report its version of the legislation. If Republicans unite in voting against the bill, the chances of getting any legislation out of the closely divided Senate will be slim.

That was not the view just two weeks ago, as the House Financial Services Committee was preparing to mark up its version of the bill. The chairman, Democrat Barney Frank, had done a masterly job in winning over Republican members of the committee and gaining support for the bill from just about every industry group, along with consumer and housing advocates.

Frank had already pushed through the House legislation to create a strong new regulator for Fan and Fred that he had hammered out with Treasury, along with another administration-proposed bill to modernize the Federal Housing Administration (FHA). With both bills languishing in the Senate, Frank agreed to include updated versions in this year's effort on mortgage foreclosures.

In addition, Frank agreed to jettison a provision that would have allowed bankruptcy judges to modify mortgage loans, an idea popular with left-leaning Democrats but noxious to Wall Street and the mortgage industry.

In response to demands of the Bush administration, he tightened up on a new voluntary program to allow the FHA to refinance certain troubled mortgages if lenders agreed to write down the principal of the loan.

To accommodate mortgage service companies, Frank accepted a provision that would have shielded them from being sued by investors for entering into the workout agreements.

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