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Legislative Bid to Buoy Slumping U.S. Housing Sector Meets Debate

May 8, 2008 at 6:25 PM EDT
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Amid a continuing U.S. economic downturn, Capitol Hill lawmakers have been debating how to effectively provide relief for the housing crisis. Two members of Congress discuss their positions on the housing bill and how to best revive a slumping housing market.

RAY SUAREZ: Now the housing bill passed today by the House of Representatives to help homeowners in trouble.

NewsHour congressional correspondent Kwame Holman begins with this report.

KWAME HOLMAN: The Democratic measure aims to stem the tide of foreclosures that have helped drag down the U.S. economy. But most Republicans say the plan goes too far and today opposed it, as did President Bush yesterday, issuing a veto threat.

GEORGE W. BUSH, President of the United States: We are committed to a good housing bill that will help folks stay in their house, as opposed to a housing bill that will reward speculators and lenders.

REP. BARNEY FRANK (D), Massachusetts: I guess, when you don’t have a serious argument, Mr. Speaker, you just make things up.

KWAME HOLMAN: That’s Barney Frank, chairman of the Financial Services Committee, and chief architect of the Democratic proposal.

The bill’s most contentious provision would allow the Federal Housing Administration to insure up to $300 billion in new mortgages at more favorable terms for homeowners, and require lenders to assume some of the loss.

The Congressional Budget Office estimates it would help half-a-million borrowers, at a cost of $2.7 billion. The bill also calls for an overhaul of the FHA, favored by many Republicans. It also would tighten regulations on loans made by the federally-backed mortgage companies Fannie Mae and Freddie Mac, and provide a variety of tax breaks and tax credits to help the housing industry.

Democrats argued, the bill is timely and necessary.

Vermont’s Peter Welch:

REP. PETER WELCH (D), Vermont: It addresses very specifically in a practical way the housing crisis that has been brought on by the subprime foreclosure debacle.

What it does is that it shares the opportunity of relief and it shares the pain of getting the relief, so that we can end up, at the end of the day, with several hundred thousand American families still in their homes, lenders having been able to mitigate their loss, homeowners being able to keep a roof over their head.

KWAME HOLMAN: But a number of Republicans insisted, the bill was nothing more than a bailout for irresponsible lenders and borrowers.

Spencer Bachus of Alabama is the top Republican on the Financial Services Committee.

REP. SPENCER BACHUS (R), Alabama: One hundred and ten million American families who are making their mortgage payments on time, who are renting, or who have paid off their mortgages, they are being drug in to this process and are being made liable and are on the hook now for these bad loans. They have been reading about it, and now they’re going to be responsible for them. Now they’re going to have to start paying.

KWAME HOLMAN: Earlier in the day the House voted separately to provide $15 billion to states to buy and maintain foreclosed homes.

MAN: Mr. Speaker, I move the House to now adjourn.

KWAME HOLMAN: Republicans repeatedly used parliamentary maneuvers to forestall debate yesterday. But, today, there were fewer procedural roadblocks, and the Democrats’ bill passed. The Senate is acting on similar measures.

RAY SUAREZ: Margaret Warner has our own debate on the subject.

Federal plan to insure homeowners

Rep. Barney Frank
The problem with foreclosures is that they have concentric circles of damage. It's not simply the person who loses his or her home.

MARGARET WARNER: And, for that, we turn to the Democratic bill's chief author, Congressman Barney Frank of Massachusetts, chairman of the House Financial Services Committee, and Congressman Tom Price, a Georgia Republican who voted against the bill. He also sits on the Financial Services Committee.

And, gentlemen, welcome to you both.

Congressman Frank, you won today, but this fight is clearly going to continue, given what the president said. So, explain. Why should the government be involved in insuring some 500,000 homeowners who now basically are sitting in homes where they owe more than the homes are worth?

REP. BARNEY FRANK: Because we are in a recession today, in which we are losing jobs every month, rather than creating jobs, in which there are serious economic problems hitting many of our cities and states who are losing the ability to meet their basic needs, because of the subprime crisis.

Now, in the ideal situation, we wouldn't be doing this. But one of the problems we have with any solution or any effort to alleviate a problem is that it can't be more elegant than the problem. And the alternative of doing virtually nothing would, of course, allow for a more prolonged recession.

The problem with foreclosures is that they have concentric circles of damage. It's not simply the person who loses his or her home. It's the people in that neighborhood, who suddenly have vacant property on the block that deteriorates the quality of their lives and the value of their property.

It's the cities that had property that used to pay taxes that now consume taxes, because foreclosed property causes problems. I have police chiefs in Minnesota writing and saying, please help us. And these very cities can't do it all on their own, because they have lost the revenue. And, even most important, there's the economy.

We are in a serious economic slowdown now. And the subprime crisis is a major factor. That's why Federal Reserve Chairman Bernanke and many others in the bank regulatory area have been supportive of this, because they feel that if, we cannot substantially reduce -- not obviously eliminate altogether -- the flood of foreclosures, we will be that much longer and deeper in the economic hole.

MARGARET WARNER: So, Congressman Price, why isn't that a worthy endeavor?

REP. TOM PRICE (R), Georgia: Well, the concentric circles of damage have now spread to the taxpayer. This is $300 billion bailout. It's transferring liability from borrowers and lenders to the taxpayer. It's simply unfair. And that's not what the American people want. It's also...

Tax payer liability

Rep. Tom Price
The most important thing to appreciate is that there's this general sense that nothing has been done. In fact, a lot has been done.

MARGARET WARNER: I'm sorry. Can I just ask you a question, though? When you said $300 billion, I thought the CBO said it was $2.7 billion that taxpayers would be on the hook for. Am I wrong?

REP. TOM PRICE: Well, it's interesting you ask that, Margaret, because we asked that on the floor. If it's just $2.4 billion, why not have the bill say that? But the bill says $300 billion. And it does so because the CBO has been notoriously incorrect in its estimates.

It underestimated the deficit -- overestimated the deficit by over a couple hundred billion dollars, and does so routinely. So, $300 billion is there for a reason.

But the most important thing to appreciate is that there's this general sense that nothing has been done. In fact, a lot has been done. The FHA Secure program and the HOPE NOW program that gets borrowers and lenders together, so that they can work out a refinancing, keep people in their homes, which is a positive program, and doesn't require taxpayer liability, has put about two million individuals allowed to keep them in their home. We're talking about 500,000 individuals. This -- those programs would be very amenable to helping those folks out as well.

REP. BARNEY FRANK: Well, there are two major errors there.

First of all, the FHA Secure program does put the taxpayers on the hook, just as this one does. The FHA Secure is a program whereby the FHA does guarantee, in exactly the same way -- there's to taxpayer money here going to the lenders who have to write down the loans. There's no taxpayer money going to pay off anybody's mortgage.

The exposure of the taxpayer is guaranteeing loans. Now, FHA Secure also does that. The other glaring error is that $300 billion, which is the falsest figure I have ever seen in a serious debate.

Yes, it's $300 billion that is the total amount of mortgages that could be ensured. If every mortgage was ensured, and the day after they were ensured, nobody made a payment, and when the FHA took the houses that had defaulted, they could get zero for them, it would cost $300 billion.

What the CBO said -- and people like the CBO sometimes, but don't like it other times -- Congressional Budget Office said, if you take up -- if 500,000 of these are done, that will cost, by the way, not the $2.7 billion, because of the $2.7 billion that they charge, $300 million will go for a Republican amendment, which I supported, to hire more FBI agents and fraud prosecutors.

So, it's under $2 billion. That's where the taxpayer is on the hook. Why is it $300 billion? Because, if you potentially insure $300 billion, the likeliest amount that you will have to pay is the $2.4 billion. And, by the way, this is subject to appropriation, so, that, in fact, when the bill finally gets operational, there will be a cap of the $2.7 billion.

There's no way, under the way this will work, that it will cost more than $2.7 billion, of which, of course, $300 million will be for the FBI.

REP. TOM PRICE: Couple -- couple points -- couple points, Margaret.

Solving the housing issue

Rep. Barney Frank
This is not stopping prices from going. As a matter of fact, this begins with the holders of the mortgages being told, you better reduce the amount you think you're going to get.

MARGARET WARNER: Congressman, I'm trying to avoid -- let's avoid getting lost in the numbers, because there are some big concepts here.

Go back to the first point, if you would, that Congressman Frank made, which is that the blight that is inflicted here when you have foreclosures really does -- is widespread. Now, you said that, well, now we're just going to add the taxpayers to the concentric circles. And I get that point, but what about the cost of not doing that? Are you saying it's basically worth it?

REP. TOM PRICE: Well, how -- how do you get to the bottom of this housing problem and challenge that we have? You get to the bottom when the market determines that housing prices have fallen to an appropriate amount. And, hopefully, we still believe that markets ought to be how we determine what housing prices ought to be, and not that the government ought to be determining that.

When we get to that bottom, then housing prices will -- the demand will increase and housing prices will begin to come up. You can't artificially change that by congressional action, by governmental action.

When you try to do that, all you do is manipulate the market and, I believe, prolong the challenges and the pain that -- that we're feeling. And, just as a point on that $300 billion, it's extremely important. The chairman is very accurate in what he says all the time. And he's very accurate in what he puts in bills. And the $300 billion is in there for a reason.

It's because that's the ultimate exposure if in fact the worst thing would happen -- were to happen. And that's important to appreciate.

REP. BARNEY FRANK: That's the silliest thing people will hear today, even if they watch the Cartoon Network. That would be if every mortgage totally failed, and you recovered nothing from it.

By the way, I probably shouldn't have been here, because Mr. Price could have debated himself, because when he says have the government stay out of the market, that contradicts his bragging about FHA Secure and the HOPE NOW, which were also government interventions in the market.

MARGARET WARNER: Congressman...

REP. BARNEY FRANK: So, there's just a total contradiction here about what you do or don't do.


But, Congressman Frank, let me get you to respond to Congressman Price's point that, essentially, by doing this, you're creating a -- basically a false floor under house prices and that the only way to get out of this is just let them fall where they're going to fall and then come back.

REP. BARNEY FRANK: Well, the answer, first of all, is, if he really believed that, he wouldn't be bragging about FHA Secure and the other federal program. So, there's a kind of contradiction there.

Secondly, no, this is not stopping prices from going. As a matter of fact, this begins with the holders of the mortgages being told, you better reduce the amount you think you're going to get.

And we are only going to give a guarantee if they get down to 85 percent of the appraised value. The government isn't appraising. The government is going to rely on private appraisers. No, we assume prices are going to be going down. And there's nothing in here that's going to stop prices from going down.

Again, the lender is being told, you're not going to get what that mortgage says. And, by the way, that's 85 percent of the value of the house. It will be less than 85 percent of the value of these loans, because the loans are above the value of the house. So, we're telling the lender, you're going to have to take a very substantial reduction in what you thought you could get if you want to participate in this.

And, so, there's no -- no one is stopping the market from ultimately adjusting prices.

Providing funding during a crisis

Rep. Tom Price
I would also make the point that this, in fact, is another bailout, if you will, for lenders. It's a bailout for Wall Street. It's not a bailout for borrowers.

MARGARET WARNER: OK, Congressman Price, before we go, I want to ask you about a point that the Democrats raised over and over on the floor today. And they were comparing to the government intervention, the Fed's intervention on behalf of Bear Stearns.

And what is the difference, in your view, between the government supporting or basically ensuring some risky mortgage securities and, as Congressman Frank's bill suggests, some risky mortgages?

REP. TOM PRICE: Well, it's apples and oranges. Bear Stearns wasn't on the floor today. In fact, the Bear Stearns assistance never came for congressional action, because it happened through the Federal Reserve. They made that decision, not Congress. We didn't get a chance to vote on that.

And I would also make the point that this, in fact, is another bailout, if you will, for lenders. It's a bailout for Wall Street. It's not a bailout for borrowers, because lenders are the ones that determine whether or not this step occurs, whether they ask the FHA to move into this program. This is a bailout for lenders. It's a potential $300 billion liability transferred from borrowers and lenders to the taxpayer. And that's not what the American people think are fair, especially the 110 million who have paid their mortgage, have paid off their home, or are renting.

So, it's -- this is not a fair program. It's not what the American people want. And I believe that it's also going to take a whole lot longer to get to the right answer because of what this Congress has done today.

REP. BARNEY FRANK: You didn't get an answer on how the Bush administration, which strongly supported Bear Stearns through the Treasury Department and its appointees, how it's OK to do $29 billion for Bear Stearns, but not $2.4 billion for homeowners.

REP. TOM PRICE: Well, with all due respect, Mr. Chairman, it wasn't a congressional action.

REP. BARNEY FRANK: No, but it was the Bush administration. I understand that. I wouldn't say it was a congressional action, if you were listening. I said the Bush administration. The Bush administration, I was asked, has threatened to veto the bill.

They say you can't do $2.4 billion for homeowners, but you can do $29 billion for the people who did business with Bear Stearns.

REP. TOM PRICE: Margaret, the important thing to take home is that there have been two million individuals, nearly two million households that have been helped by programs that are already in place that don't increase taxpayer liability. That is the important take-home message.

REP. BARNEY FRANK: But that interfere with the market, Tom. I thought you weren't for those.

Oh, the FHA Secure does involve taxpayers. You're simply wrong about that. FHA Secure is the FHA guarantee, which is where the taxpayers become liable.

MARGARET WARNER: OK, Gentlemen, we have to leave it there.

Thank you. Thank you both.

REP. TOM PRICE: Thank you, Margaret.