Senate Panel OKs Homeowner Rescue
Wednesday, May 21, 2008
Printable FormatAP By JULIE HIRSCHFELD DAVIS
WASHINGTON (AP) -- Profits from government-sponsored mortgage giants Fannie Mae and Freddie Mac, instead of taxpayers, would back up a home loan rescue for up to 500,000 strapped borrowers under a plan approved by a key Senate committee Tuesday to pull the nation out of a housing crisis.
Democrats and Republicans banded together to push the plan through the Senate Banking Committee on a 19-2 vote, boosting the chances for a broad election-year housing aid package.
The centerpiece of the measure would give cheaper, government-backed mortgages to up to 500,000 strapped borrowers. Eight Republicans joined the panel's Democrats to back it, after extracting a major concession to pay for the foreclosure-prevention plan by diverting money intended to pay for housing for the poor.
The bill also tightens regulation of Fannie Mae and Freddie Mac, which would finance a new affordable housing fund that would temporarily be used to pay for the foreclosure prevention program.
"If I were writing this on my own, it would look different, but it is a balance," said Sen. Christopher J. Dodd, the Banking chairman, who predicted the measure could clear Congress by July 4. "This is a major step forward."
"I believe the White House will support this," said Sen. Richard C. Shelby, the panel's senior Republican. "I don't know why they wouldn't."
The White House, however, called that assessment premature.
Officials have warned that President Bush would veto a similar House-passed measure, calling it a burdensome bailout that exposes taxpayers to undue risk. The bill would let the Federal Housing Administration back up to $300 billion in new loans for struggling homeowners who would otherwise be considered too financially risky to refinance into a fixed-rate, government-insured mortgage.
Borrowers would have to show they could afford the new loans, and to share with the government half of their new equity and any future proceeds from selling or refinancing again. Mortgage holders would have to write down the existing loans at a substantial loss, in exchange for avoiding a costly foreclosure.
The White House was noncommittal Tuesday about the Senate bill, saying policy aides were analyzing the financing mechanism to see whether it addressed Bush's objections.
"That's what we're checking, because we don't believe that taxpayer dollars should be used to help lenders or speculators. We think that we should be able to help Americans who want to stay in their homes and can afford to stay in their homes find a way to do that without using taxpayer dollars," said Dana Perino, the White House press secretary.
Sen. Barack Obama, D-Ill., called on Bush to "abandon his veto threats and commit his administration to working with Congress" to enact the measure quickly. "American families need urgent relief, and these are important steps to help innocent homeowners, without rewarding irresponsible lenders," the Democratic presidential candidate said in a statement.
The idea of an FHA-based foreclosure prevention bill has drawn staunch opposition from most Republicans, many of whom say they are concerned that taxpayers would be on the hook for huge losses if homeowners defaulted on their new loans.
Many Democrats are displeased about the idea of using a fund designed to help the lowest-income people avoid homelessness to instead help middle-class people stay in their homes.
Rep. Barney Frank, D-Mass., the Financial Services chairman, has said he is against the idea, and it is certain to be a hotly debated part of House-Senate negotiations on the measure. The projected $2.7 billion cost of his housing package would be covered by the government.
But Democratic senators argued that establishing a lasting fund to help the lowest-income families was worth the short-term trade-off.
"We salvaged an affordable housing program in perpetuity," Dodd said.
"The shortage of affordable homes for the lowest income people in our country has gone unnoticed for too long. Today is a milestone in the quest to assure a decent home for everyone in the United States," said Sheila Crowley, president of the National Low Income Housing Coalition.
Frank said Tuesday that, based on Dodd's agreement with Shelby, "it is highly likely we will be able to compromise on a significant housing package."
The housing package is far from final. The Senate won't act on the measure until after lawmakers return from a weeklong Memorial Day break, and even after that, the bill would have to make it through a contentious and complicated round of House-Senate negotiations before it could be presented to Bush. Ultimately, it is expected to include the FHA homeowner rescue; a modernization of the FHA; the regulatory overhaul of Fannie Mae and Freddie Mac; and a package of housing tax breaks, including tax-free mortgage revenue bonds to help homeowners refinance subprime loans.
The Bush administration has long called for the Fannie and Freddie measure, and Treasury Secretary Henry M. Paulson Tuesday called that "the most significant component" of the bill approved by the Senate Banking panel.
"Fannie Mae and Freddie Mac are guaranteeing a greater share of mortgages than ever before," Paulson said in a statement. "It's never been more critical that markets have confidence in how these companies are overseen and regulated."
Associated Press writer Ben Feller contributed to this story.