House Democrats push bill to use TARP funds for homeowner mortgage relief
Tuesday, December 8, 2009
House Democrats are seeking to tap the government's massive bailout fund to help homeowners who have lost their jobs and are struggling to make their mortgage payments.
House Financial Services Committee Chairman Barney Frank (D-Mass.) on Monday signed on to a proposal by Rep. Maxine Waters (D-Calif.) that would channel $3 billion from the federal Troubled Assets Relief Program toward mortgage relief for jobless Americans. The measure would designate another $1 billion for a program that gives grants to state and local governments to purchase foreclosed properties and use them for more productive purposes.
"The combination of unemployment and foreclosures may be the greatest threat to our economic recovery," Waters said.
The proposal is one of more than 100 proposed amendments to a sweeping financial regulatory reform package scheduled for consideration in the full House this week.
In addition, Democratic lawmakers are planning to use the regulatory reform bill to revive a provision that would allow bankruptcy judges to modify a homeowner's mortgage, including lowering the interest rate or cutting the principal owed. The provision passed the House earlier this year but is fiercely opposed by the financial services industry and was voted down in the Senate.
The renewed efforts come in the wake of recent complaints by the Congressional Black Caucus about the Obama administration's handling of the economy. Caucus members, alarmed by the particularly harsh toll that foreclosures and unemployment have wrought on minority communities, have pushed in recent weeks to provide more tangible help to ailing homeowners. The caucus has held numerous meetings with White House officials and delayed a vote on the regulatory reform bill to draw attention to its concerns.
The Obama administration's foreclosure prevention program, known as Making Home Affordable, has faced pressure recently because lenders have moved only a small percentage of borrowers from the initial trial phase to a permanent loan modification. Data to be released by the Treasury Department this week will show that about 6 percent of borrowers enrolled in the program so far have moved from trial modification to permanent adjustment, according to two industry officials.
Treasury officials called a meeting with industry leaders on the issue Monday as part of a campaign to address the challenges borrowers face in receiving permanent modifications, Michael S. Barr, a Treasury assistant secretary, said in a statement. Mortgage servicers "are on notice that they must ramp up and provide sustained relief to struggling homeowners now," he said.
Industry officials say the small percentage reflects hundreds of thousands of borrowers who have not provided enough documentation to prove they are eligible for the program. But housing advocates argue that many homeowners remain in limbo even after submitting documents multiple times. Treasury is scheduled to release detailed data this week showing which lenders have completed the greatest number of modifications.
Mortgage industry officials, meanwhile, are less than thrilled that the so-called "cramdown" provision, which would allow judges to modify loans, might get a second chance in Congress.
"We continue to think it's a bad idea, especially given the market of uncertainty" the country is in, said Steve O'Conner, a senior vice president at the Mortgage Bankers Association.
The measures proposed by Frank, Waters and others would become part of a wide-ranging bill to overhaul the nation's fractured financial regulatory structure. Frank's committee in recent months has approved a series of measures, including bills to establish oversight of the vast derivatives market and create an agency to regulate credit cards, mortgages and other consumer loans. The bills, which passed separately through the committee, will be bundled into one piece of legislation for consideration in the full House. Debate on the inclusive bill is scheduled to begin Wednesday, with a final vote by week's end.