Congressional Democrats and the White House are on a collision course over an ambitious proposal drafted to address the spreading mortgage crisis. The Bush administration calls the bill a "bailout," saying it "strongly opposes" the legislation sponsored by House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, intended to make it easier for homeowners to refinance their loans and stay in their homes.The committee, which estimates that the program could help 1.5 million homeowners who are having difficulty paying their mortgages, is expected to approve Frank's bill next week.
Frank says the millions of individuals who might face foreclosure because of the expanding credit crisis deserve help, even if they made a mistake by borrowing beyond their means. "There are people who made loans that should not have been made; there are some people that were wrong to take the loans out, some wrong to make the loans. If nothing happens and all those loans go under foreclosure, the economy suffers," he said.
The bill would not authorize the government to loan taxpayers' money directly to homeowners. Instead, it would authorize the Federal Housing Administration to guarantee up to $300 billion in new mortgages offered by government-approved private lenders. The new mortgages could at most equal 90 percent of a home's current value. Only homeowners who have a mortgage-debt-to-income ratio of 35 percent or higher and who entered into a mortgage before January would qualify for the program.
For a homeowner to get a new FHA-backed loan, the holder of the current mortgage would have to accept a loss and take a payment totaling no more than 85 percent of the home's value.
The government would also get a share of profits if the homeowner sold the house in the future and would have to pay the lenders only if homeowners defaulted on FHA-backed mortgages. The Financial Services committee estimates that 1 to 2 percent of the new loans would default, costing the government between $3 billion and $6 billion.
The administration touted existing FHA programs, including the FHASecure plan the president announced in August, calling them "simpler and more targeted" ways to help homeowners who are behind in their mortgage payments. The administration says the FHASecure program will help half a million homeowners by the end of the year.
Some congressional Republicans also oppose Frank's proposal, saying it essentially forces one neighbor to pay for the mistakes of another. "You're telling the guy who did it right that he has to help pay for the guy who did it wrong," said Rep. Jeb Hensarling, R-Texas. "When people are struggling to pay for their mortgages, they shouldn't be forced to pay for their neighbors' mortgage.
"I think about 95 percent of America is either renting a home, they own their home outright, or they're current on their mortgage," he said. "So 95 percent of America who's doing it right is asked to help bail out 5 percent of America who probably wasn't doing it right."
Hensarling also said Frank's bill amounted to a bailout of the large banks that made the ill-advised loans in the first place. "You can not bail out borrowers without bailing out lenders," he said. "This is a massive Wall Street bailout bill."