Democrats Tailor Foreclosure Bill To Obama Goals
Saturday, February 14, 2009
As President Obama prepares to announce a program next week to stem the soaring rate of foreclosures, key Democratic lawmakers say they are planning to craft a housing bill that would give the administration the authority it needs to carry out several elements of the initiative.
Obama will unveil the plan Wednesday in Arizona, among the states hardest hit by the housing downturn, White House press secretary Robert Gibbs said yesterday.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said the administration's program would probably require changes to federal law. Some of those are already working their way through Congress. But Frank said he is looking to pull them together into a single housing package.
The legislation would include a provision changing the bankruptcy law to allow judges to modify the mortgages of distressed homeowners, including by reducing the principal of the loan to the property's current market value, he said. This proposal has already gained support from one House committee but drawn fierce objections from Republicans and the financial industry. Though Obama supports this provision, he declined to include it in the stimulus bill approved yesterday, fearing the bankruptcy measure would derail the overall legislation, Democratic congressional sources said.
Another provision, Frank said, would provide legal protection to lenders who reduce interest rates or otherwise modify the terms of troubled loans for homeowners. Some previous foreclosure prevention efforts have been hampered by the threat that investors who own securities backed by the mortgages would sue to block loan modifications, according to the financial services industry.
The package could also clarify Treasury Secretary Timothy F. Geithner's authority to use funds from the financial bailout program, which was set up to rescue the banking industry, to provide incentives to lenders that modify troubled loans. The bill could also make clear that the Federal Housing Administration has the authority to bar some lenders from its programs. That move would be aimed at predatory lenders.
Government officials have already said Obama's plan would establish industry standards for modifying troubled loans and cost about $50 billion. The administration is considering a proposal to help distressed homeowners by subsidizing lenders who cut the interest rate on mortgages, according to sources familiar with the discussions. But other proposals are also under consideration, they said.
The plan will "ensure that the 10,000 Americans each day that have their homes foreclosed on, and the millions more that are barely getting by, are protected. That's what the White House is going to do, and I think that's what the American people demand," Gibbs said.
As the administration moved closer to announcing its plan, J.P. Morgan Chase, Bank of America, Citigroup and several other lenders announced temporary moratoriums on foreclosures of owner-occupied properties. The moratorium, while temporary, gives the Obama administration some needed time, Frank said. "It takes a little of the heat off of Geithner," he said.
J.P. Morgan Chase and Bank of America said their moratoriums would last through March 6. Citigroup said its moratorium would last until the administration finalizes details of its loan-modification program, or March 12, whichever is earlier. This fulfills a pledge Citi's chief executive, Vikram Pandit, and others made to the House Financial Services Committee on Wednesday. "Citi is taking the necessary steps to help American homeowners keep their homes," the firm said in a statement.
Steve Bailey, a Bank of America executive, said the announcement underscores his company's "commitment to providing our customers with the options and resources necessary to help sustain homeownership. . . . We are hopeful that the Treasury program will offer effective solutions that increase the opportunities for sustainable home ownership."
Government and industry loan-modification efforts have been struggling to ease the foreclosure problem and several lenders have announced more aggressive programs in recent months. Borrowers complain that lenders are difficult to reach and offer modification plans that are unaffordable.
Two federal banking regulators, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, said yesterday that they are studying the effectiveness of different loan-modification programs. The report, scheduled to be released next month, will look at how often homeowners re-defaulted on their loans after they were modified, for example.
"This is important information on banks' efforts to modify loans and will help inform lenders and policymakers as to what type of modifications work, with a particular focus on the effect of significant changes in monthly payments," Comptroller of the Currency John C. Dugan said in a statement.