Immediate help for homeowners suffering from the housing crisis should be superior to a long-term overhaul of federal regulation of Wall Street, top Democratic senators said yesterday ahead of reintroducing foreclosure prevention legislation this week.
In a conference call shortly after Treasury Secretary Henry Paulson's speech on federal regulation, Senate Banking chairman Chris Dodd, D-Conn., and Majority Leader Harry Reid, D-Nev.,said lawmakers and the Bush administration should be focusing on providing help in the present.
"We're concerned about today," Dodd said.
While Reid said Paulson's ideas are "certainly a step in the right direction" and that the Senate will "work with him," housing-related legislation is more important. Reid this week plans to reintroduce the Foreclosure Prevention Act of 2008, a second stimulus package containing bond-related housing proposals, debate on which was blocked by Senate Republicans last month.
As home mortgages continue to fall to foreclosure, Democrats are pushing for GOP support on the bill - which Reid originally introduced Feb. 14. But Republican support appears uncertain because of partisan disagreements over a bankruptcy provision in the measure.
Housing advocates laud the bond-related provisions in the bill, which include temporarily increasing by $10 billion the private-activity bond volume cap and allowing the excess capacity to be used to refinance "qualified subprime loans," as well to finance loans to first-time homebuyers.
Currently, tax-exempt bond funded mortgages can only be used for first-time homebuyers. Another provision would provide $4 billion of community development block grant program funds to municipalities that could be used to purchase and refurbish foreclosed homes.
These provisions have relatively broad support, but the bankruptcy provision appears to be the one major deterrent against the bill's passage, housing advocates have said. The provision would allow modifications to mortgages in bankruptcy proceedings. Current law says judges cannot change the terms of primary-residence mortgages as part of bankruptcy court proceedings.
"They've got to drop the bankruptcy provision," said John. C. Murphy, executive director of the National Association of Local Housing Finance Agencies. Murphy also said Bush's opposition to the CDBG funding proposed makes the bill even more problematic.
"Is it needed? Absolutely," he said. "It's an essential part of a response to this problem. This crisis, I should say."
"Certainly now that they've bailed out the corporate side, meaning Bear Stearns, it would be logical to think that we can't forget about the homeowner, or those communities, who have already seen massive foreclosures, whole neighborhoods. That's got to be part of the response."
Anthony Freedman, a tax lawyer with Holland & Knight LLP, said that the bankruptcy provision puts the market in a position of uncertainty.
"I think everybody in the industry thinks that the bankruptcy provision is going to drop out at a point, but you really can't tell," Freedman said yesterday. "It really does change the fundamental assumptions that the market makes when it underwrites mortgages and when it underwrites securities secured by mortgages. It's a concern when the market's already scared stiff of housing-backed financing. I'm not sure it needs another shock right now."
He said the trade-off for dropping the bankruptcy provision "has got to be a serious effort" to address home buyers who are "seriously in over their heads."
Freedman said there is a consensus that assistance should be given to home buyers, and some refinancing assistance to lenders in exchange for them voluntarily taking a hit. "That's probably where the answer lies," he said.
"Congress is on the one hand trying to solve the problem and on the other hand trying to posture itself politically against an administration that either doesn't believe the problem is there or doesn't believe the problem can be solved," Freedman said.
During the call yesterday, Dodd said quick action is important. "This problem is going to get worse by the hour. And every day we delay, every hour we delay, places more Americans at risk," he said.