Despite a presidential veto threat, the House passed a broad home-loan rescue package on Thursday that aims to stem a tide of foreclosures.
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."
But Republicans and the Bush administration say that lenders would take advantage of the proposed new law by transferring their highest-risk loans to the federal government, including those with the worse payment histories. At a cap of $300 billion, only a third or fourth of those who are most delinquent on their mortgages would benefit, he says.
By contrast, Republicans propose first helping those borrowers who come closest to satisfying the terms of their mortgages. In response to the subprime mortgage crisis, the Bush administration has expanded eligibility standards for federally insured loans.
Democrats note that only a few thousand families have benefited from these efforts to date. But by the end of 2008, the FHA Secure program will reach more than a half-million homeowners, FHA commissioner Brian Montgomery told the House Financial Services panel last month.
In the run-up to this week's vote, other top federal housing and banking officials have supported a greater federal role in curbing foreclosures,
"As a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million US homes during 2007, up 53 percent from 2006, and the rate of foreclosure starts looks likely to be yet higher in 2008, Ben Bernanke, chairman of the Federal Reserve Board, said in a speech at the Columbia Business School in New York on Monday. Avoiding "preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."
House Democrats say that the White House veto threat caught them by surprise. "Last time we heard they were going to veto the bill, they specifically repudiated that, and in the interim, the bill got better from their standpoint," says Representative Frank (D) of Massachusetts, who chairs the House Financial Services Committee, which adopted nine Republican amendments in marking up the bill.
"The best thing for us to do is to keep going ahead," he said after the vote. "We're not folding up our tents, we're not stopping trying to compromise. We're still taking their views into account and moving forward."
Meanwhile, the Senate Banking Committee is expected to begin a markup of its own version of the bill next week. "We're working and have been working over the last few weeks with Republicans to develop bipartisan legislation – a creative, practical way to help thousands of people stay in their home," said chairman Christopher Dodd (D) of Connecticut at a press briefing after the president's veto announcement.
With problems in housing markets mounting and more adjustable mortgages set to reset in July, "my hope is that the president will rethink that position," he said.
Republicans on the panel say that negotiations on the shape of the bill, expected to include a version of the House FHA plan, are ongoing. A spokesman for Sen. Richard Shelby (R) of Alabama, the top Republican on the panel, says that his primary considerations are reforms for government-sponsored mortgage companies and ensuring that new FHA programs are paid for.
"Whether we've reached an agreement remains to be seen," he adds.