A Bipartisan Bid on Mortgage Aid Is Gaining Speed
By DAVID M. HERSZENHORN and VIKAS BAJAJ
The new pledge of cooperation was the latest sign of fast-growing consensus among Congress, the Bush administration and financial regulators that broader government action was needed to prevent a torrent of new foreclosures and further collapse of the housing and residential mortgage markets.
And it reflected the mounting pressure on Congressional Republicans and the White House to extend a helping hand to average Americans after the Federal Reserve’s intervention in the near collapse and proposed sale of Bear Stearns, the New York investment bank, to JPMorgan Chase.
As lawmakers worked Tuesday to refine details of the package, the new spirit of collaboration raised hopes of swift action on broader measures that some Democrats say could potentially help as many as 1.5 million homeowners by refinancing riskier adjustable-rate mortgages into traditional 30-year loans.
At a minimum, the bipartisan package was expected to include up to $200 million to expand counseling programs for homeowners at risk of foreclosure, $10 billion in tax-exempt bonds for local housing authorities to refinance subprime loans, $4 billion in grants for local governments to buy foreclosed properties and a $15,000 tax credit for purchasers of foreclosed homes or newly built homes that have been sitting vacant.
Roughly 4.2 million mortgages were either past due or in foreclosure at the end of last year, according to the Mortgage Bankers Association. An additional three million borrowers may default in the near future.
Both the Senate Banking Committee and the House Financial Services Committee have been working on bills that would allow the Federal Housing Administration to insure $300 billion to $400 billion in additional mortgages, with an upfront cost of $10 billion. The Bush administration has been developing a similar plan of its own that would expand an existing refinance program called F.H.A. Secure.
Banking trade groups, while eager to see further details, said on Tuesday that they were cautiously supportive of the plans. The proposals would call on lenders or loan-servicing firms to reduce loan balances voluntarily and take sizable losses. In return, the loans would be refinanced and given a government guarantee.
Senate Democrats and Republicans announced their plans at a joint news conference, an exercise so rare, given the partisan acrimony that has dominated Capitol Hill in recent months, that the majority leader, Senator Harry Reid of Nevada, felt compelled to offer a disclaimer: “This is not April Fool’s,” he said. “This is serious business.”
“We know that the smoke out there is a housing crisis, the fire is the economy,” Mr. Reid said. “This is a crisis that we have. The only way it’s going to be solved is working together.”
The White House said the Democrats were exaggerating how many people would get help. “The only way to achieve some of these estimates would be to abandon prudent underwriting standards, and that would only create more unsustainable risks,” said Tony Fratto, the deputy press secretary.
In fact, it is impossible to know exactly how many borrowers would be helped by any plan passed by Congress.
Analysts estimate that more than five million households, or about 10 percent of all homes with a mortgage, now owe more than their house is worth, and the number is expected to grow as home prices fall. It is unclear how many of those loans are already delinquent or in foreclosure.
Under all of the competing plans, homeowners would need to meet strict requirements and demonstrate the ability to pay their new loan. Critics warn that taxpayers could get stuck with a huge bill if large numbers of borrowers defaulted yet again.
That risk is especially great in places like Las Vegas and Phoenix, where home prices are falling fast, said Dean Baker, the co-director at the Center for Economic Policy Research.
“In the bubble-inflated markets, you still have a long way to go down,” he said. “That’s one of the things that I don’t think people have fully appreciated.”
A more contentious proposal by Democrats to allow bankruptcy judges to modify loans on primary homes, which is widely opposed by Republicans and the mortgage loan industry, was expected to cause heated debate.
Lee ADDS: As long as speculators and people that bought over their ability to pay the true loan payment are not benefited by thisw legislation, go for it!
