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Approval Is Near for Bill to Help U.S. Homeowners
By DAVID M. HERSZENHORN
Published: June 25, 2008
WASHINGTON — With sinking home values continuing to drag down the economy, Congress is poised to approve a huge package of housing legislation, including a refinancing program aimed at rescuing hundreds of thousands of homeowners in danger of foreclosure and the most sweeping government overhaul of mortgage financing since the New Deal.
Go to Blog »Lawmakers moved with increasing urgency on Tuesday after a closely watched housing index showed prices nationally had declined in April by more than 15 percent from a year earlier. Senator Harry Reid of Nevada, the majority leader, threatened to keep the Senate in session through the Fourth of July holiday to finish the housing measure, if needed. The House has already approved similar legislation.
The centerpiece of the Senate package is a rescue-refinancing plan aimed at stemming the tide of more than 8,000 new foreclosures a day that lenders are filing across the country. The plan would allow distressed borrowers and their lenders to stem losses by allowing qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee.
The legislation would also provide benefits for first-time buyers, who would receive a refundable tax credit of up to $8,000, or 10 percent of the value of a home, on purchases of unoccupied housing.
As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets, making it easier for borrowers to obtain mortgages at discounted rates. Despite a presidential veto threat, the package received overwhelming bipartisan support, clearing by 83 to 9 a crucial procedural vote in the Senate on Tuesday morning.
Final passage of the bill was snagged temporarily in the Senate Tuesday evening because of a fight over renewable energy tax credits. Still, major supporters of the bill said they hoped it would be completed before for the holiday.
“There’s a great desire to act,” said Representative Barney Frank, Democrat of Massachusetts, the bill’s main author in the House. “We’re just not there yet.”
The bill would provide $150 million to expand counseling for borrowers to prevent foreclosure and would establish stricter disclosure rules to require lenders to make plain the maximum monthly payment for a borrower with an adjustable rate loan.
The bill also establishes an Affordable Housing Trust Fund, to be financed by $500 million to $900 million in fees from Fannie Mae and Freddie Mac. The fund will cover any expenses related to the foreclosure rescue plan for three years, and will be used to create affordable rental housing.
Under the refinancing plan, only borrowers seeking to remain in their primary home would be eligible. Lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value.
Still, with the closely watched Standard & Poor’s/Case-Shiller index showing home prices in 10 major metropolitan areas down 16.35 percent in April from a year ago — the worst annual decline in two decades — lawmakers and some housing experts said the refinancing plan was becoming increasingly attractive to lenders.
According to industry benchmarks, lenders lose as much as 40 to 60 percent in foreclosure.
Even as Senate negotiators raced to finish the package ahead of the recess, talks were already under way with Mr. Frank and the House speaker, Nancy Pelosi, to reconcile differences between the Senate bill and similar legislation approved by the House.
At the White House, the press secretary, Dana Perino, softened some of the Bush administration’s criticism.
“We do think that there are some really good aspects of that Senate bill,” she said.
Still, Ms. Perino reiterated the veto threat citing concern over a provision that would allocate nearly $4 billion in grants to communities with high foreclosure rates to buy and rehabilitate vacant properties.
Senator Christopher J. Dodd, Democrat of Connecticut, the chairman of the banking committee, said that he was willing to negotiate with the White House over the proposed grant money.
And Mr. Dodd said he believed lawmakers wanted to finish the bill before heading home for Independence Day: “People I don’t think want to leave here, hanging bunting around and eating hot dogs and hamburgers knowing that every day thousands of Americans are falling into an abyss, losing their housing.”
Skeptics say the plan is a handout for irresponsible borrowers and lenders, who would be able to get rid of their worst-performing mortgages, putting taxpayers on the hook for billions of dollars in risky loans.
But in a contested election year, with Americans losing billions of dollars in home equity, officials in both parties seem reluctant to be seen as sitting on their hands.
And a close look at the fine print of the bill shows that lenders who want to use the program to refinance troubled loans into new, federally insured mortgages will have to take substantial losses. They will also have to make carefully calculated decisions about whether it makes more sense to foreclose and resell or auction a property or to help a struggling borrower refinance and remain in the home.
At the same time, homeowners seeking to use the program will have to prove that they have enough income and creditworthiness that they can afford to pay their new loans.
“The mortgages aren’t just being given out on willy-nilly random basis,” said Senator John Kerry, Democrat of Massachusetts.
Borrowers will have to pay a hefty fees to further insulate taxpayers from losses. As a result, the biggest risk may be that because the program is complicated — and voluntary — few lenders or borrowers will make use of it.
The delay Tuesday night exposed a rare rift between two senators from the same state, Mr. Reid, and Nevada’s junior senator, John Ensign, a Republican who was pushing renewable energy tax credits.
Mr. Reid, in a speech on the Senate floor did not refer to Mr. Ensign by name, but was angry.
“We’re going to stay here and finish the housing bill,” he said. “It may knock a few people out of parades on July Fourth or whatever, however long it takes us to do this.”
Robert Pear contributed reporting.
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2008-08-01 08:17:15
