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White House Threatens To Veto Anti-Foreclosure Bill

Rescue measure rewards lenders, speculators, Bush argues

By Mark Huffman
ConsumerAffairs.com

May 12, 2008

The American Housing Rescue and Foreclosure Prevention Act (H.R. 3221), authored by Rep. Barney Frank (D-MA), is aimed at expanding federal programs available to distressed homeowners. The White House says the plan rewards speculators and and lenders who make shaky loans.

Frank disagrees, saying the legislation combines a number of bipartisan bills including measures to modernize the Federal Housing Administration, which he says will provide crucial liquidity to the mortgage markets. He says it would also strengthen regulation and oversight for the future.

Frank and other Democrats say the housing package would help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process. Though the measure passed the full House last week, it failed to gain a veto-proof margin.

The Bush Administration said it would be willing to compromise with Democrats to come up with a bill acceptable to both sides. In an interview with Reuters, acting Housing and Urban Development Secretary Roy Bernardi said he believes there's room to come together.

In a speech last week, Federal Reserve Board Chairman Ben Bernanke appeared to signal support for stronger medicine than that prescribed by the White House. He recommended a number of measures contained in the House bill, and called on lenders to voluntarily write down a portion of their troubled mortgages.

Frank says his bill expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government -insured mortgages they can afford to repay. He says the legislation will help troubled borrowers avoid foreclosure while minimizing taxpayer exposure.

Frank also said the plan is limited to primary residences, and that no speculators, investment properties, second or third homes would be refinanced.

Bernanke's pleea

Bernanke said many foreclosures are not preventable. He said investors, for example, are unlikely to want to hold onto a property whose value has depreciated significantly, and some borrowers -- perhaps because they were put into an inappropriate loan or because personal circumstances have changed--cannot realistically sustain homeownership.

"However, if a foreclosure is preventable, and the borrower wants to stay in the home, the economic case for trying to avoid foreclosure is strong," Bernanke said.

Because foreclosures impose high costs, including legal and administrative costs as well as the costs of leaving the property vacant for a possibly extended period, he said both the borrower and the lender usually are better off avoiding foreclosure.

Clusters of foreclosures can destabilize communities, reducing the property values of nearby homes, and lower municipal tax revenues. At both the local and national levels, foreclosures add to the stock of homes for sale, increasing downward pressure on home prices in general.

Bernanke's concern is that an escalation in downward pressure on home prices could have an adverse impact on the broader economy and, through their effects on the valuation of mortgage-related assets, on the stability of the entire U.S. financial system.

"Thus, finding ways to avoid preventable foreclosures is a legitimate and important concern of public policy," Bernanke said.

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