Senate Short of Agreement on Housing Rescue
Friday, May 16, 2008
Senate negotiators broke off talks last night without striking a deal to rescue hundreds of thousands of homeowners at risk of foreclosure, but they said they were close to an agreement.
Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) and Sen. Richard C. Shelby (Ala.), the panel's senior Republican, said they plan to meet again Tuesday to discuss the proposal to help troubled borrowers trade exotic mortgages with escalating monthly payments for more affordable loans backed by the federal government.
"This is like keeping frogs in a wheelbarrow: When you get one thing done, something else can jump out," Dodd told reporters a few hours before calling the talks to a close for the night. But, he added, "I'm pretty optimistic."
An aide to Shelby said the two senators had "an agreement in concept" on the measure, Washington's most ambitious response to the nation's housing crisis. In addition to helping as many as 500,000 families avoid foreclosure, the measure would strengthen regulation of mortgage giants Fannie Mae and Freddie Mac.
Shelby has long sought tougher regulation for the companies. But he has opposed the foreclosure-prevention plan, arguing that it would force taxpayers to cover the cost of bailing out irresponsible borrowers. Yesterday, the aide said, Shelby agreed to support the plan if taxpayers don't have to foot the bill.
Negotiators were discussing the possibility of using a portion of the profits from Fannie Mae and Freddie Mac to pay for the program. As drafted by Dodd, the legislation calls for approximately $600 million a year to be set aside in a new fund to pay for the construction and preservation of affordable housing for low-income renters. Under one idea for compromise, that affordable-housing fund would be diverted -- at least temporarily -- to the foreclosure-prevention plan.
But that idea drew fire from some Democrats and housing advocates, who have been pushing for years for a fund dedicated to low-income housing.
The measure under discussion in the Senate is similar to one that last week passed the House. The White House has threatened a veto, citing the potential cost to taxpayers as a primary concern.
The Bush administration has taken steps to help troubled borrowers by relaxing eligibility standards for loans insured by the Federal Housing Administration. Since September, 200,000 borrowers have received FHA refinancing, the administration announced yesterday. But only about 3,000 of those had actually missed mortgage payments, prompting critics to charge that the FHA is not reaching families most in danger of losing their homes.
Dodd and other Democrats want to relax FHA eligibility standards further, authorizing the agency to insure mortgages for even the least creditworthy borrowers if lenders will forgive a portion of their debt and issue new, smaller loans with lower monthly payments. The government would not hold the mortgages but would agree to pay off lenders if borrowers default.
Borrowers and lenders would both pay high fees to the FHA, and borrowers who sell or refinance would have to share at least half of any profits with the government. Still, the Congressional Budget Office estimates that of the 500,000 homeowners likely to benefit from the program, more than a third would default, at a cost to taxpayers of $1.7 billion.
Staff writer Jeffrey H. Birnbaum contributed to this report.