|
Major bailout is unlikely on sub-prime mortgages |
|
By Jessica Holzer
|
|
Posted: 09/04/07 05:45 PM [ET] |
With a wave of defaults steadily engulfing the sub-prime mortgage market, lawmakers returning from the August recess are facing mounting pressure to help keep troubled borrowers in their homes.
Some Democratic heavyweights have staked out extensive proposals for stemming the tide of foreclosures, but any congressional response will be tempered by the Bush administration’s opposition to bailing out the investors, Wall Street banks and mortgage lenders that fueled a binge in risky lending in recent years.
Laying out his plans for handling the sub-prime mess on Friday, President Bush said, “It’s not the government’s job to bail out speculators, or those who made the decision to buy a home they knew they could never afford.” Instead, he called for more modest steps, namely expanding the role of the Federal Housing Administration (FHA), the agency that guarantees mortgages for lower-income borrowers who would not otherwise qualify for mortgage insurance.
That won’t be enough to satisfy some Democrats in Congress who want to steer large sums to distressed borrowers to help them avoid foreclosure.
Senators Charles Schumer (N.Y.), Bob Casey (Pa.) and Sherrod Brown (Ohio) have secured through the Senate appropriations process $100 million for the Housing and Urban Development (HUD) agency to distribute to nonprofit foreclosure counseling programs. Now Schumer wants to boost that amount to $300 million, and he has called for 2-to-1 matching from the private sector.
Other lawmakers are pushing for much larger sums. Last month, Sen. Hillary Rodham Clinton (D-N.Y.) announced her proposal to establish a $1 billion fund to assist state programs working to help borrowers avoid foreclosure. Writing in last Wednesday’s Financial Times, Sen. Barack Obama (D-Ill.), who is vying with Clinton for their party’s presidential nomination, advocated fining unscrupulous lenders to partially pay for a bailout fund for distressed borrowers. Former Sen. John Edwards (D-N.C.) has also made a national homeowner rescue fund part of his presidential campaign platform.
Yet even proponents of steering “rescue funds” to those borrowers at risk of losing their homes, and who have succeeded in persuading the lender to restructure their loans, aren’t banking on seeing the government pony up a lot of cash. “I think the prospect of a major funding package coming out of Congress is uncertain,” said Allen Fishbein, the director of housing and credit policy for the Consumer Federation of America.
Jaret Sieberg, a financial services policy expert for the Stanford Group, dismissed the notion of a large government bailout, predicting that only a “token amount of money” would go to state and local foreclosure prevention groups.
In part, there doesn’t appear to be sufficient appetite in Congress for rescuing borrowers with taxpayer funds. Neither Rep. Barney Frank (D-Mass.) nor Sen. Chris Dodd (D-Conn.), the respective chairmen of the House and Senate banking panels, have expressed interest in steering such funds to troubled borrowers. Instead, the two lawmakers support overhauling the FHA to allow more people to refinance their mortgages and curbing abuses in the mortgage industry.
Earlier this year, Frank passed legislation to modernize the FHA through his panel and Dodd says he will introduce similar legislation promptly after Congress returns from the break. Frank also is expected to unveil legislation later this month that would institute tighter underwriting standards in the mortgage industry and force the Wall Street banks that buy mortgages and repackage them for investors to stand guard against predatory loans.
Frank and Dodd have called several times on the administration to lift the temporary portfolio caps on Fannie Mae and Freddie Mac, the government-sponsored entities (GSEs) that buy mortgages, on the theory that they can help ease the turmoil in the credit markets. Even though the Bush administration is firmly opposed, Schumer said he would introduce legislation soon to raise the caps.
Among the proposals to rescue distressed borrowers, the Obama plan was singled out for criticism by financial industry experts. One banking lobbyist said that fining lenders was impractical because so many have gone under or are on the brink of bankruptcy, and that mortgage brokers who may have committed abuses are generally small businessmen without deep pockets. “It just doesn’t make any sense because it would just be impossible to recover from those people,” he said.
A Dodd spokeswoman indicated that the senator would not support such a proposal: “As far as fining lenders, he certainly believes that the lenders are being punished by the market.”
|
