TOPICS > Economy

Lawmakers Remain Split Over Help for Homeowners

April 11, 2008 at 6:35 PM EDT
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Amid the subprime mortgage crisis and subsequent economic downturn, Republican and Democratic legislators alike have called for the government to do more to aid struggling homeowners. However, the amount and kind of such aid is the subject of fierce debate. A reporter details the legislative battle over housing aid.

RAY SUAREZ: Many Democrats and some Republicans say the government should do more to help homeowners in financial trouble, but the plans circulating on Capitol Hill about how to do that are very different.

In fact, the Senate passed a bill yesterday. But before it was approved, many Democrats already said it didn’t go far enough.

David Herszenhorn has been covering the story for the New York Times, and he joins us now.

And that Senate bill, how would it work? And what is it supposed to do to keep people in their homes?

DAVID HERSZENHORN, New York Times: Well, the Senate bill is targeted really at the housing industry, stabilizing the market, rather than providing direct assistance to homeowners.

There’s some money for local governments to buy up foreclosed properties, fix them. The White House is opposed to that. And there’s some money for local housing authorities to refinance loans.

But this is really a more broader economic package. So there’s tax breaks for home builders and other struggling businesses, not just builders. There is a credit for folks who buy foreclosed homes of $7,000.

So it’s actually more of a tax package in the Senate, even though it’s a housing — it’s called a housing bill, the Foreclosure Prevention Act. And Chris Dodd, the senator from Connecticut who sponsored it, acknowledged yesterday that it doesn’t live up to its name.

Parties disagree on form of aid

David Herszenhorn
The New York Times
The catch is that lenders upfront would have to take a cut. They would have to reduce the principal balance of those loans down to a point where it more closely reflected the decline in house prices. And it's unclear if they're going to do that.

RAY SUAREZ: Did it pass with a lot of Republican support?

DAVID HERSZENHORN: It actually did, which is surprising given that the White House has expressed serious opposition. But one thing it teaches you is that there is substantial Republican support in the Senate for tax cuts. And a lot of this package is tax cuts.

RAY SUAREZ: Well, Barney Frank has been championing a different bill in the House. How different is that House bill or in its form that it exists now?

DAVID HERSZENHORN: What it looks like we're headed to is actually a major omnibus piece of legislation that would include tax provisions, some of what the Senate did. Charlie Rangel has actually proposed an alternate version of that.

And then what Barney Frank has is what Democrats see as the main vehicle for helping homeowners in distress. And, actually, some people say it helps lenders a lot, too.

And what that would do is try to make available up to $300 billion in federal insurance for mortgages, $300 billion in federally insured mortgages that would let folks who now have expensive adjustable-rate mortgages, those interest rates are likely to reset in the coming months -- some folks say there are as many as 2.8 million homeowners potentially facing foreclosure -- and would let as many as a 1.5 million of those owners in trouble refinance into stable, 30-year, traditional mortgages with lower monthly payments, hold on to their homes.

The catch is that lenders upfront would have to take a cut. They would have to reduce the principal balance of those loans down to a point where it more closely reflected the decline in house prices. And it's unclear if they're going to do that.

RAY SUAREZ: What about the proposal that had been talked about early in this process that had federal bankruptcy judges taking a part in recasting loans?

DAVID HERSZENHORN: At the moment, that's off the table. The Republicans actually strongly oppose that and the banking industry opposes it, as well.

So when the Democrats in the Senate first tried this bill back in February, because it had that provision to change the bankruptcy law that would let judges go in and actually change the terms of mortgages on first homes, which they can't do now -- they can do that with vacation homes and investment properties -- the Senate Republicans killed that on February 28th.

When they came back from the two-week Easter break, having heard an earful from folks at home about the rising cost of gasoline and problems in the housing market, there was a new push to address housing legislation. Democrats finally agreed to drop that bankruptcy provision.

It was actually Dick Durbin, the senator from Illinois, who was the sponsor of that and finally, when it looked like it was going to derail what they were doing, made the motion himself to table it, winning him praise from both sides of the aisle.

RAY SUAREZ: Has the White House had much to say about either the Senate or House version of these proposals?

DAVID HERSZENHORN: The White House has a proposal that's a more modest version of what Barney Frank is suggesting, similar refinancing of mortgages. They don't want new legislation, though.

They think the Federal Housing Administration can handle this, do it by administrative change and regulation, not with new legislation that they're afraid would be overly broad.

So the White House is predicting their plan could help as many as 100,000 more homeowners by the end of the year. Barney Frank, again, it's about 1.5 million, somewhere between 1 million and 2 million.

Tiptoeing around 'bailout'

David Herszenhorn
The New York Times
The big concern among a lot of Americans -- 92 percent or more of homeowners, of course, are paying their mortgages on time -- is no bailout.

RAY SUAREZ: We are talking about some time before anything is passed in a final version, right?

DAVID HERSZENHORN: We are looking at least a few more weeks, and there will be a lot of wrangling back and forth. Especially as this becomes a bigger bill, there will be a lot of interest in attaching different things to it.

And, of course, the big concern among a lot of Americans -- 92 percent or more of homeowners, of course, are paying their mortgages on time -- is no bailout. And so the thing that Democrats will have to persuade everybody is this is not a rescue for people who were irresponsible or who were greedy and that Uncle Sam is not going to be writing a check to pay off anyone's mortgage.

And that's actually true. It's really refinancing them to get them federal insurance on a more affordable loan. But if they can't pay that loan, they'll lose the house just the same.

RAY SUAREZ: Well, following up on that "no bailout" theme, it sounds like a lot of the people debating these topics and speaking about them in public from the House and Senate say that not all homeowners are alike. There are some people they want to help out and very definitely not others.

DAVID HERSZENHORN: It's really interesting. When you go out into neighborhoods that are really hard hit by foreclosure -- I've done this in South Florida -- you realize that every situation is unique and it's going to be very, very hard to legislate a solution through this.

Barney Frank thinks he's going to thread the needle with this proposal, which really creates a situation where the troubled homeowner has to qualify for a new mortgage. So if their house was way too expensive, they really can't afford to keep that house, they won't be able to get help under this plan.

But you're right. You know, the lawmakers are very mindful of this. Jeb Hensarling, a congressman from Texas, was saying, "How do I tell my constituent who scrimped and saved to put a 20 percent down payment and driving an old car, you know, so he can afford his house that I'm going to put his money at risk to bail out his next-door neighbor who took 100 percent loan for a house he couldn't afford when the value went up, took another second mortgage to buy a brand-new truck, I'm going to bail out that guy?" It's a real tough question.

RAY SUAREZ: David Herszenhorn, thanks for joining us.

DAVID HERSZENHORN: You're welcome.