“Mortgage Aid” – a conspiracy to save those who created the crisis


Richard Moore

Notice that all of these proposals involve using our money to pay off all of those bad loans that should never have been made in the first place. Thus the banks at fault get paid back first, and then perhaps the suffering home buyers might get a benefit as well, if the program is administered properly (and how many ever are?).
A much more sensible solution would be to simply decree that existing mortgages be instantly reduced to a reasonable market value and interest rates be lowered to an affordable fixed rate. Let the banks take the losses they deserve to take. Why should we bail them out?


April 2, 2008

A Bipartisan Bid on Mortgage Aid Is Gaining Speed

WASHINGTON — Casting aside partisan differences, Senate Democratic and Republican leaders said on Tuesday that they would work urgently on a package of legislation to help millions of homeowners at risk of foreclosure, with the hope of bringing a bill to the floor as early as Wednesday afternoon.

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.

The rare joint news conference followed a procedural vote in which the Senate agreed, 94 to 1, to open formal debate on a Democratic package of housing legislation, including the expansion of mortgage counseling and the bankruptcy change.

Republicans had blocked the measure in late February. Since then, the financial markets have experienced additional turmoil, including the near collapse of Bear Stearns and intervention by the Federal Reserve.

That prompted a barrage of criticism from Democrats, who accused the Bush administration and Republicans of rushing to help Wall Street while ignoring Main Street. And lawmakers then went home for a two-week recess where many said they had gotten an earful from constituents on the housing problems as well as rising gasoline prices.

And by the time they returned to Washington on Monday, it was clear that senators in both parties felt enormous pressure to make progress on a housing bill.

Senator Richard C. Shelby, the senior Republican on the Banking Committee, said that the action on Bear Stearns was a turning point.

“When the Fed intervened with Bear Stearns and so forth, then people said, ‘Well, gosh, the Fed has intervened, what has Congress done in terms of housing?’ And they are inextricably linked, financing and housing.”

Mr. Shelby said that lawmakers were also close to a final deal on a bill intended to modernize the Federal Housing Administration. The Senate and the House have each approved versions of that bill, and the one sticking point seemed to be a disagreement over whether to permanently increase the size of loans that the F.H.A. can insure.

That limit was increased temporarily in the economic stimulus bill approved by Congress in February, to $729,750 in the nation’s most expensive housing markets. The cap is a percentage of median home prices.

Senate leaders said they expected the Democrats’ original housing bill would be replaced by a bipartisan bill, which they said they hoped the Banking Committee would have ready by noon on Wednesday. More contentious provisions would then be offered as amendments to that measure, officials said.

Many of the initiatives under consideration by the Senate are also part of draft legislation in the House by Representative Barney Frank, Democrat of Massachusetts and chairman of the Financial Services Committee, making it likely that anything approved in the Senate would have relatively smooth sailing on the other side of the Capitol.

After weeks of often heated talk, including warnings from some Republicans that they did not want to commit taxpayer funds to what could be nothing more than a bailout for greedy lenders and irresponsible homeowners, there has been a more reasoned discussion in recent days about taking prudent steps to protect the wider economy.

David M. Herszenhorn reported from Washington and Vikas Bajaj from New York.