Senate Democrats demanded Thursday a much more forceful response to the crisis of home foreclosures, including the possible creation of a new government body that would purchase failing mortgages and help troubled borrowers refinance into new loans.
The proposed entity, dubbed the Home Ownership Preservation Corp., echoes government efforts during the Great Depression.
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, floated the idea as a potential strategy to help families that are in danger of losing their homes.
Although Dodd offered few details, such a body could put some taxpayer money at risk if reworked loans held by the new agency also failed, and it quickly sparked opposition from Republican lawmakers.
Nonetheless, the controversial idea underscored that worries about the economy continue to intensify and are prompting calls for increasingly strong medicine.
"Every day that goes by without action means that more families are losing their homes," Dodd said, maintaining that Bush administration regulators acted "much too late and far too timidly" as the problem of rising foreclosures developed.
"There's no doubt this problem will deepen," he said during a committee hearing.
In December, the Bush administration announced a voluntary initiative in which lenders would ease the terms of certain sub-prime loans made to borrowers with shaky credit in order to protect these people from losing their homes.
The initiative was meant to help borrowers who live in their homes and who have kept up with payments, but who cannot afford upward resets in their monthly payments that now loom.
On Thursday, however, an influential U.S. regulator complained that lenders were moving at an "unacceptably slow" pace to help such borrowers.
"It is important that [lenders] demonstrate and document real progress soon or they invite regulatory and legislative action to supplement the industry's action," Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., told Senate members.
"Speed is crucial," she added.
Earlier this week, RealtyTrac of Irvine reported that the number of mortgage loans going into default or foreclosure rose 75% in 2007.
Yet as foreclosure worries spread -- along with fears that weakness in housing is pulling the broader economy into a recession -- lawmakers remain divided on how to respond.
Democrats scolded the mortgage industry Thursday for failing to do more to help keep struggling borrowers in their homes, and also criticized the Bush administration for not being a more effective regulatory cop.
Dodd promoted the idea of a Home Ownership Preservation Corp. as the sort of approach that deserved "serious consideration" at a time when 1.7 million homeowners face steep, upward resets in their monthly mortgage payments by 2009.
In prepared testimony, one scholar said that a Depression-era initiative might offer a precedent for today's problems. In 1933, a time when many Americans also could not afford their mortgages, the U.S. government created a Home Owners' Loan Corp. that bought troubled mortgages and placed the borrowers in less costly, refinanced loans.
Such a temporary effort during hard times can be "a reasonable project with much historical precedent," said Alex J. Pollock, resident fellow at the American Enterprise Institute, a conservative think tank.
Nonetheless, some lawmakers expressed concerns that new government efforts to protect borrowers could help people who do not deserve it, and unfairly stick taxpayers with the bill.
"I am concerned that further government action will expose taxpayers to excess risk or be a bailout," said Sen. Jim Bunning (R-Ky.), adding, "I don't think anyone here wants to do that."
Such views reflect a strong sentiment by much of the public, and Bunning was not alone in expressing them Thursday.
Sen. Richard C. Shelby (R-Ala.), the panel's senior Republican, said, "It's not the responsibility of the American taxpayer to bail out those who for whatever reason have not been able to meet their obligation."