PRESIDENT BUSH frets that foreclosure relief legislation would "reward speculators and lenders." So he dismisses carefully crafted efforts by Congress to prevent as many as 500,000 families from losing their homes to foreclosure. His concerns are not only misplaced, but hollow when compared with the growing displacement of families and destabilization of neighborhoods.
Last week, the US House passed a bill that would allow the Federal Housing Administration to guarantee $300 billion in refinanced mortgages for so-called "underwater" borrowers whose mortgages exceed the current value of their home. The Senate is expected to mark up a similar bill in the Banking Committee on Thursday. But Bush is threatening to veto the effort, as well as a bill to provide $15 billion to local governments to purchase, renovate, and resell foreclosed homes in blighted neighborhoods. He rejects the bills as little more than taxpayer funded bailouts.
There is no simple or painless way to recover from the subprime mess that was driven by sloppy mortgage servicers offering adjustable-rate mortgages to shortsighted buyers. Rising interest rates and falling home prices buried both borrowers and investors in mortgage-backed securities. For the health of the economy, the Bush administration supported an effort to risk $29 billion in taxpayer funds to rescue investment house Bear Stearns from the subprime meltdown. Yet the same administration treats homeowners as so much dross.
Last year, lenders were on pace to initiate about 1.5 million foreclosure proceedings, according to the Federal Reserve System. It's a disaster both for homeowners and their neighbors who contend with the blight and crime that grow up around abandoned properties. Federal Reserve Chairman Ben Bernanke understands this and explains the need for mortgage servicers to write down sufficient principal to allow borrowers to remain in their homes. The House and Senate bills provide mechanisms for original lenders to cut their losses and homeowners to refinance at reasonable rates with new lenders approved by the FHA.
The bills also address the president's concerns about unjust rewards. Only owner-occupants, for example, would be eligible for the new FHA-insured mortgages. And borrowers who sell their homes would have to pay exit fees - or a share of the profits if their homes appreciate in value - to the FHA.
There is no bailout or windfall here. Congress is merely offering a fighting chance for families and credit markets to recover. The president should help or get out of the way.
