House passes mortgage rescue

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Times Staff Writer

The House on Thursday passed the most sweeping government plan yet to shore up the troubled housing market and help people struggling to pay their mortgages, adopting legislation that would underwrite $300 billion in new loans and keep an estimated 500,000 homeowners out of foreclosure.

Backers contend the bill -- or something close to it -- has a good chance of becoming law even though Senate Republicans have criticized it and the White House has threatened a veto.

“We’re not stopping trying to compromise,” said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee and chief author of the package. “We’re still taking their views into account and moving forward.”


Democrats and Republicans have clashed repeatedly over the size, pace and scope of any government rescue plan. And some House Republicans complained about parliamentary maneuvers that Democratic leaders had used to move the bill to a vote and to reduce the chances that the legislation would become bottled up in the Senate.

As the housing crisis has deepened, however, and opinion polls have shown increased voter anxiety about the economy, pressure has mounted on both parties to take action before the Nov. 4 election.

“After a historic housing boom in the first half of this decade, we are now in an unprecedented housing crisis,” said House Majority Leader Rep. Steny H. Hoyer (D-Md.). “The negative housing market has had a rippling effect throughout our economy.”

“We cannot stick with the status quo,” said Rep. Ginny Brown-Waite of Florida, one of 39 Republicans who voted for the measure. “That’s sticking our policymaking heads in the sand.”

Rep. Gary G. Miller of Diamond Bar was the only California Republican to vote for the bill.

“I don’t support government bailouts but I consider this bill far from a government bailout,” said Miller, whose district includes communities hurt by the wave of foreclosures.


The bill passed 266 to 154.

Many Republicans who otherwise supported the legislation voted against it to protest what they called the majority’s heavy-handed procedural tactics to limit debate and speed passage by sending the measure directly to the floor of each house.

The housing crisis has not only pitted both parties against each other but also has divided the GOP internally, with some Republicans arguing that the government should stand aside and let market forces deal with the issue and others insisting that the collateral damage from a hands-off approach would be too great.

Declining home values and a paralyzed housing industry will continue to hurt neighborhoods and communities, drain local tax coffers, boost unemployment and depress the overall economy as the effect of the housing downturn spreads, some Republicans argue.

“No one wins when a house in the neighborhood is foreclosed. Absolutely no one, because it brings down the value of those properties,” Brown-Waite said.

At the center of the legislation is a measure that would allow the Federal Housing Administration to insure up to $300 billion in refinanced mortgages if lenders agree to write down the loan principal below the home’s current appraised value. The plan would help an estimated 500,000 homeowners avoid foreclosure.

The measure would cost about $2.7 billion, according to the Congressional Budget Office.

Another provision, with particular relevance to California and other states with high home costs, would permanently raise to $729,750 the limit for mortgages that government-sponsored holders Fannie Mae and Freddie Mac can buy.


Without congressional action, that limit could revert back to as low as $362,000 by the end of this year.

“One of the biggest challenges facing the housing market in high-cost states like California is that housing programs have not kept pace with the times. Unrealistically low loan limits for Fannie Mae, Freddie Mac and FHA mean that people living in high-cost states have not fully benefited from these programs,” said Rep. Jerry McNerney (D-Pleasanton).

Supporters said the bill would also remove a key obstacle that has prevented many homeowners from refinancing -- the fact that they have no equity because their home has lost value and is now worth less than they owe on their mortgage.

Opponents argued that the FHA program would bail out lenders, not homeowners, and reward reckless behavior by both borrowers and lenders.

“More than nine out of 10 mortgage holders make payments on time. They will now be on the hook for bad mortgage debt, as will renters saving for a first-time home, and those who own their homes outright,” said Rep. Wally Herger (R-Chico). “This bill sends the signal that there are no real consequences for poor lending or borrowing practices, and encourages more of the same behavior that led us here in the first place.”

Frank argued that the refinanced loans would not reward speculators and investors because they would be awarded only to people who live in their homes. The homeowners would also have to demonstrate an ability to repay, accept high mortgage insurance premiums, and share proceeds from any future sale of the home with the government.


The bill includes a tax credit of $7,500 to help first-time homeowners enter the market. The credit would be paid back over 15 years, effectively making it an interest-free loan, and would be phased out for taxpayers with adjusted gross incomes in excess of $70,000 or $140,000 for joint filers.

In a separate measure, the House passed a bill sponsored by Rep. Maxine Waters (D-Los Angeles) to grant $15 billion to local governments to buy and repair foreclosed property for resale. The bill passed 239 to 188, but also faces the threat of a presidential veto.

Also notable is what was not in the bill -- a tax credit for home builders. A Senate housing bill included the $6-billion tax credit to help developers and home builders, but the measure was dropped from the House version.

The legislation passed Thursday includes several provisions that were long sought by the Bush administration, including tighter oversight of Fannie Mae and Freddie Mac, and modernization of the FHA.

At least initially, the White House showed little inclination to compromise, denouncing the House bill as a bailout.

“House Democrats passed legislation that they know will never become law,” White House spokesman Tony Fratto said after the vote. “Most Americans understand that we shouldn’t create a taxpayer-funded bailout for lenders and speculators.”


But congressional Democrats and some Republicans, worried about the possible political cost of failing to act, believe further negotiations could change that position.


Times staff writer Richard Simon contributed to this report.



What the bill would do

Key provisions of the housing rescue plan approved Thursday by the House:

* Offer up to $300 billion in refinanced, federally insured mortgages for homes facing foreclosure. To qualify, lenders would have to write down the principal of the original mortgage to 85% of the home’s current appraised value. Borrowers would have to meet strict criteria, including that they occupy the home, can document their income and can pay high mortgage insurance premiums. If the home is sold within five years, some or all of the proceeds would return to the government. This program would cost $2.7 billion over five years and prevent about 500,000 foreclosures.

* Permanently raise to $729,750 the conforming loan limit for government-secured mortgages (through Fannie Mae, Freddie Mac and the FHA) in high-cost regions.

* Include a $7,500 tax credit for first-time home buyers to be repaid over 15 years.

* Provide taxpayers who do not itemize a $350 credit ($700 for joint filers) for property taxes.

* Provide $230 million for financial counseling for struggling homeowners.

* Tighten oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Bank system.

* Offer some protection from lawsuits for mortgage servicers who rewrite securitized mortgages.


* Give states $10 billion in municipal bond authority to generate capital for mortgage refinancing and building low-income rental housing.

Source: Times research