Congress Poised to Tackle Mortgage Crisis, Help Homeowners

WASHINGTON - March 30 2008 - Congressional leaders are racing to push through an array of election-year housing measures that already have stirred up much political wrangling, and the White House is examining its own plan to further help homeowners caught in the mortgage meltdown.

With foreclosure signs prevalent and a Wall Street rescue reverberating, majority Democrats want the government to step in and back up to $400 billion in troubled loans.

The goal is to help strapped borrowers and thaw a credit market plagued by uncertainty about the value of subprime mortgages made to people with spotty credit or low incomes.

As lawmakers return from their two-week spring recess, their leaders are moving fast to increase the political heat on the housing issue. Many Republicans, though, are resisting what they characterize as heavy-handed federal intervention that could leave taxpayers on the hook for a mortgage bailout.

Senate Democrats plan a test vote this coming week on a series of housing proposals. One would let bankruptcy judges reduce the amount owed and interest payments on loans held by distressed borrowers. President George W. Bush and Republicans strongly oppose the idea.

Democrats, however, are determined to put Republicans in the position of making tough votes, given the housing issue’s potency for voters.

“Our hope is that when Republican members went back home they said ‘Let’s do something,’” said Sen. Charles Schumer (D-N.Y.), chairman of the Joint Economic Committee. ” … we are hopeful that there will be a change of mind in the Republican leadership.”

Bush administration officials have signaled in recent days that they, too, are reviewing a new approach to help homeowners, including people who owe more on their mortgages than their houses are worth.

The White House is evaluating the Democratic proposals, but Bush advisers say the administration does not want to reward risky behavior by borrowers, speculators and lenders.

Meanwhile, Democrats are also planning high-profile hearings scrutinizing the Federal Reserve’s recent moves to help Wall Street weather the credit crisis.

The Bush administration is trying to confront that crisis by proposing wholesale changes in how Washington oversees the financial system.

A plan set for release tomorrow would give new powers to the Federal Reserve so that the central bank serves as the system’s overarching protector of stability. When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s.

The Associated Press obtained a 22-page executive summary of the proposal. It seeks to make sense of the mishmash of overlapping oversight in which an alphabet-soup roster of agencies regulates banks, thrifts and credit unions.

Under the current hodgepodge, institutions that take deposits and are federally insured face multiple regulatory bodies. By contrast, hedge funds, private equity firms and investment banks endure substantially less regulation.

The credit crisis that has rocked Wall Street and made credit hard to get on Main Street has highlighted that discrepancy in regulation.

This week, Democrats hope to pressure Republicans to back their housing initiatives or face charges of hypocrisy for supporting a government rescue for investment giants like Bear Stearns but not for struggling homeowners.

Bush, however, has been cool to the idea of a big federal housing rescue. “The temptation of Washington is to say that anything short of a massive government intervention in the housing market amounts to inaction,” he said recently. “I strongly disagree with that sentiment.”

Congress poised to tackle tricky mortgage crisis
THE ASSOCIATED PRESS