Monday, May 21, 2018
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Mortgage rescue plan for 400,000 clears Senate test

WASHINGTON - A foreclosure rescue bill cleared a key Senate test yesterday by an overwhelming margin, with Democrats and Republicans both eager to claim election-year credit for helping hard-pressed homeowners.

The mortgage aid plan would let the Federal Housing Administration back $300 billion in new, cheaper home loans for an estimated 400,000 distressed borrowers who otherwise would be considered too financially risky to qualify for government-insured, fixed-rate loans.

An 83-9 vote put the plan on track for Senate passage today, but President Bush is threatening a veto, and Democrats are fighting each other over key details.

That probably will delay any final deal until mid-July.

The bill advanced as separate reports underscored rising economic anxiety: Consumer confidence slid to its lowest level in more than 16 years, and closely watched indices showed a continuing decline in home values.

At the Capitol, Sen. Christopher J. Dodd (D. Conn.), the Banking Committee chairman, said the lending measure "would allow us to begin to put a tourniquet on the hemorrhaging of foreclosures in this country."

"We need to demonstrate to people in this country that have lost an awful lot of faith in almost everything, but certainly in [Congress], that we can get something done, that we can put aside differences and make a difference in their lives," Mr. Dodd said.

Still, conservative Democrats known as "Blue Dogs" are concerned about how to pay for the measure, and members of the Congressional Black Caucus call it unacceptable, arguing it doesn't do enough to address the needs of black Americans.

Congressional leaders also are divided on how high to place loan limits that apply to government mortgage insurance and financing. The Senate bill sets those limits at $625,000 while a House-passed version puts them at $730,000 - a crucial difference in high-cost housing markets like California, home to House Speaker Nancy Pelosi.

Lawmakers have been negotiating with the Bush Administration to avert a veto. Dana Perino, the White House spokesman, said the Senate measure has "some really good aspects" and Congress is "on the right path."

Borrowers would be eligible for the housing rescue if their mortgage holders were willing to take a substantial loss and allow them to refinance, and if they could show an ability to make payments on the new loan. They ultimately would have to share with the government a portion of any profits they made from selling or refinancing their properties.

The bill also would tighten controls and create a new regulator for Fannie Mae and Freddie Mac, the mortgage giants that provide huge amounts of cash flow to the home loan market by buying loans from banks.

It would provide a $14.5 billion array of tax breaks, including a credit of up to $8,000 for first-time home buyers who buy in the next year. And it would boost low-income tax credits and mortgage revenue bonds.

The measure falls $2.4 billion short of covering the costs of those tax items, a sort point for Blue Dogs who oppose initiatives that add to the deficit.

A key provision of the housing bill - and widely touted as offering a lifeline to distressed homeowners - was initially suggested to Congress by lobbyists for major banks facing their own huge losses from the subprime mortgage crisis, according to congressional staff members and bank officials.

Credit Suisse, a large investment bank heavily invested in mortgage-backed securities, proposed allowing hundreds of thousands of homeowners to refinance their mortgages with lower-cost government insured loans, relieving financial institutions of the troubled debt.

That suggestion, dubbed the "Credit Suisse plan" formed the basis of housing provisions in both the House and Senate.

Bank of America, which is acquiring Countrywide Financial, the country's largest mortgage lender, followed with a similar and more detailed proposal, principal negotiators on the legislation said.

The lobbyists suggested that banks take less than full payment for the distressed loans on their books.

But the measures would allow financial institutions to get cash out of foreclosed properties that would otherwise sit on their books as dead weight.

Since the new loans would be guaranteed by the Federal Housing Administration, taxpayers would ultimately pay for defaults.

The Congressional Budget Office projected that this could cost $1.7 billion over five years.

House Financial Services Committee Chairman Barney Frank (D., Mass.) said the legislation was the result of many conversations with interested parties, including fair-housing advocates.

Lawmakers and bank officials defend the provision as a balanced compromise, tempered by extensive input by government regulators, that gives homeowners a chance to stay in their homes while preventing the government from having to appropriate billions of dollars to buy nonperforming mortgages.

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