The Obama administration is promising an aggressive fight against the rising tide of home foreclosures, but officials have yet to decide what strategy -- or combination of strategies -- they will use.
Among the possibilities being pushed by various interest groups are a six-month foreclosure moratorium, a doubling of the mortgage interest deduction, a tax credit for those who buy homes and a federally sponsored mortgage refinancing program.
But it's been two years since foreclosures began to mount. And government and the financial industry have been unable to agree on a plan largely because they cannot resolve a central issue: How should losses be divided between borrowers and lenders?
Treasury Secretary nominee Timothy Geithner said last week that the administration was still wrestling with proposals and did not expect to finalize plans for several weeks.
Meanwhile, business and housing experts as well as congressional leaders have been eagerly pushing their suggestions.
The challenge for the White House will be crafting a foreclosure prevention package that promotes refinancings without unfairly benefiting irresponsible borrowers or lenders.
Last week, Lawrence H. Summers, the former Treasury secretary who is Obama's pick to direct the National Economic Council, wrote a letter to congressional leaders stating the administration would commit $50 billion to $100 billion "to a sweeping effort to address the foreclosure crisis."
The fine print of the letter, however, indicates that the administration does not plan to help everyone with mortgage trouble. It specifies that "preventable foreclosures" will be targeted and states that aid will go to "economically stressed but responsible homeowners." Just how the administration will separate those worthy of assistance from the lost causes is among the details yet to be determined.
"They're just getting started," said Steven Adamske, spokesman for the House Financial Services Committee. It's too early to know, he said, what foreclosure relief measures may emerge as law.
UC Berkeley economist Kenneth Rosen met with the Treasury Department's transition team this month to present his ideas for addressing the housing crisis.
Rosen presented a plan to declare a six-month foreclosure moratorium during which officials could figure out criteria for determining which mortgages could be saved and which couldn't. For worthy borrowers, he favors government-sponsored mortgage refinancing at an interest rate of 4.5%. To encourage home purchases, he proposes a tax credit for those who buy homes this year.
But Rosen said he was unable to pick up any hints about specific changes that might come to fruition. "There's so much going on, negotiating with the House and Senate," he said.
Last year a $7,500 federal tax credit was created for first-time home buyers, but the credit must be repaid. Various industry groups such as the National Assn. of Home Builders and National Assn. of Realtors have called for eliminating the repayment requirement and adopting a tax credit based on a percentage of the home purchase price, with a maximum amount of $22,500. The groups also favor allowing all home purchasers, not just first-time buyers, to receive the credit.
John Burns, a prominent Irvine consultant to home builders, has proposed a more targeted tax credit that would match down payments up to $15,000. Burns contends that such a credit would encourage the borrower to put up a greater personal stake in the purchase, and he favors making the credit subject to "recourse" if the borrower defaults. In some states, such as California, home mortgages are generally treated as non-recourse loans, which means that when borrowers default, they can lose their home and collateral but are not required to repay the full loan amount.
Burns also proposes temporarily doubling the mortgage interest deduction for all homeowners. He says such a measure would help those who may be on the brink of default, but it would also give others more disposable income, which would stimulate the overall economy.
Many of those proposals would help builders and lenders, which would still be repaid the full amount of mortgage principal owed to them.
It is not clear, though, how much such proposals would help borrowers whose mortgage debt is higher than their home is now worth.
In Congress, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, tried to address the problem of such homeowners last summer with his "hope for homeowners" program, but it has had limited effect. This month, he proposed using funds from the $700-billion federal financial bailout program to address foreclosures through a number of measures, including a program to guarantee loan modifications. Another proposed program would pay down second mortgages that may be hindering a workout of a troubled first mortgage.
The Obama administration has recently been more specific in supporting one foreclosure prevention measure viewed by backers as among the most powerful tools to help distressed borrowers, but long opposed by most lenders. It's a proposal to allow bankruptcy judges to order banks to reduce the principal that people owe on their homes.
President Obama has said he supports such reform. Most mortgage bankers oppose giving judges such power, saying it would lead to higher mortgage interest rates. But fair-housing groups say it would prevent hundreds of thousands of foreclosures.
Industry opposition to the idea has faded recently, as the National Assn. of Home Builders said last month it would remove its opposition, and this month, Citigroup Inc. said it would back such bankruptcy reform.
Still, with the banking industry in an ever more fragile condition, it is possible that the government will hesitate to force lenders to take the losses on the bad loans they hold without causing an even more widespread financial collapse.
It is also not clear how well any of the proposed remedies would work.
Rosen of UC Berkeley said that whatever course the administration chose, many more foreclosures were inevitable.
"Many people will lose their houses anyway," he said. "They're just stretched too far."