House passes rescue package for mortgage crisis
Lenders who trim the principal on troubled loans would get federal loan guarantees.
Despite a presidential veto threat, the House passed a broad home-loan rescue package on Thursday that aims to stem a tide of foreclosures.Skip to next paragraph
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At the heart of the plan is a move to shift homeowners from subprime mortgages they can no longer afford to federally backed mortgages. Families are currently slipping into foreclosure at a rate of 7,000 to 8,000 a day, according to the Pew Center on the States.
The plan provides $300 billion in federal loan guarantees to lenders who agree to reduce the outstanding principal on loans. In exchange for a new mortgage, backed by the Federal Housing Administration (FHA), homeowners must share profits on a subsequent sale of their home with the government.
The package also includes a one-time $7,500 tax credit for new homeowners to be paid back over 15 years, and $15 billion for states and localities to buy and rehabilitate foreclosed properties.
In a veto threat this week, the Bush administration dubbed the plan "overly burdensome and prescriptive."
"It would force FHA and taxpayers to take on excessive risk, and jeopardize FHA's financial solvency," said the administration in a statement on May 5. The White House has been urging Congress to swiftly pass reforms to modernize FHA and government-sponsored mortgage companies Fannie Mae and Freddie Mac.
Negotiations with the White House continue next week as the Senate is expected to mark up its own version of the bill.
This week Republican leaders called on the GOP caucus to vote down the House bill. "The bill ... is really asking taxpayers to bail out scam artists and those who were speculating in the market. And they're asking the American taxpayers to pick up the tab," said House Republican leader John Boehner (R) of Ohio.
Thirty-nine Republicans, many from districts hardest hit by the subprime mortgage crisis, bucked their leadership in voting with Democrats for the plan, which passed the House by a vote of 266 to 154.
"We have a housing crisis in Ohio," says Rep. Steven LaTourette (R) of Ohio, who worked with Democrats on the plan. "As a loyal Republican, I'd like to be supporting Republican legislation, but it wasn't bold action. Chairman Frank is taking bold action."
"When I go home and talk to crowds, they want something accomplished," he adds. "When losing homes and paying $3.77 a gallon for gasoline, they want to know that the government is going to do something – not just hear that 'I've saved you from the nasty Democrats.' "
Despite partisan flare-ups in House floor debate on this bill, lawmakers close to the issue say that negotiations at the committee level have been unusually bipartisan and in good faith.
"It's a philosophical difference; it's not a food fight," says Rep. Spencer Bachus (R) of Alabama, the top Republican on the House Financial Services Committee. "Chairman [Barney] Frank and I have a long history of working together in a bipartisan way. He legitimately believes that foreclosure is bad for a community: It not only affects the homeowner losing his home but also the value of neighbors' property, the crime rate, and the economy of the community."