Should Congress help borrowers?
Lawmakers are finding it difficult to mount large-scale help for homeowners.
Faced with a deep slump in housing and credit markets, Washington has found it easier so far to throw lifelines to big business than to ordinary Americans.Skip to next paragraph
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This month, the US Congress is starting to consider in earnest whether comparable assistance is warranted on Main Street.
Arguably, small borrowers face challenges that are every bit as acute as those of financial firms. Home values are declining and foreclosures are now occurring at record volumes – and those trends pose a threat to the health of the economy.
But it is proving difficult for lawmakers to mount large-scale help for homeowners for several reasons. One big hurdle is pragmatic: In some regions of the US, home values are still declining so fast that even a deep reduction in mortgage payments may help lenders more than homeowners.
Another is the question of fairness. Should taxpayer money be spent on borrowers who may have been unwise? The answer depends partly on partisan ideologies and on differing views of the risks to the economy if nothing is done.
The real question for policy, he says, should be "a benefit-cost, risk-reward kind of perspective."
The chances of large-scale help for homeowners, analysts say, will grow larger if the risks to the economy appear larger.
Many economists believe that the United States may endure a recession this year, but that moves by the Fed – coupled with the "stimulus" checks that Congress has arranged to send to taxpayers – will prevent it from becoming a deep one.
Still, America's job growth has turned negative in recent months, and home prices continue to fall – down 10 percent in the past year, by one index.
Potential relief measures
Those negative trends have helped build momentum for a mortgage relief bill in Congress. So far, the measures that would provide the most extensive help directly to homeowners haven't yet gathered the momentum required to clear a 60-vote hurdle in the Senate.
Such measures could go down one of two general tracks. One approach would use taxpayer dollars to prevent foreclosures, by refinancing or modifying home loans on terms the borrowers can afford. Another approach would seek the same result by other means, such as by allowing bankruptcy judges to essentially rewrite loans.
What senators did agree to put in a bipartisan bill last week were smaller measures. The bill would include $10 billion for states to issue bonds to help homeowners refinance and $4 billion for states to buy foreclosed homes. Both parties also support $200 million in new money for foreclosure-prevention counseling.
The bill also includes a tax break for industry – home builders in this case.