Emergency mortgage aid bogged down

Veto threat, congressional maneuvering delay bill to avert foreclosures

In May, 261,255 homes went into foreclosure nationally, up 48 percent from May 2007. (Justin Sullivan/Getty Images)

WASHINGTON - Emergency legislation intended to help as many as 500,000 homeowners on the brink of foreclosure to renegotiate their mortgages, which congressional leaders had predicted they would approve by Independence Day, has been delayed and may now be weeks away from passage, lawmakers said.

The sweeping housing bill has been slowed by an unexpected veto threat from the White House, legislative maneuvering in the Senate, and differences between the House and Senate versions of the bill.

In addition, some House Republicans have demanded that the legislation be delayed so lawmakers can investigate a loan by a major subprime lender to one of the mortgage bill's authors, Senator Chris Dodd, Democrat of Connecticut. The lender, Countrywide Financial Corp., would be a big beneficiary of the bill.

Dodd, chairman of the Senate Banking Committee, and Senator Kent Conrad, Democrat of North Dakota, received below-market-rate mortgages from Countrywide. In Dodd's case, the 2003 loans allowed him to save up to $75,000 in mortgage payments on two homes. The Senate Ethics Committee has begun a preliminary inquiry into the loans, but backers say Congress should not wait for its outcome to approve the housing legislation.

Calls for delaying the bill were "the stupidest act of partisanship I've ever heard," said House Financial Services Committee chairman Barney Frank, Democrat of Massachusetts, who accused Republicans of using Dodd's loans as a pretext to try to block the bill. Frank introduced the key amendment creating the emergency foreclosure program in the House in April, and Dodd introduced a similar measure in the Senate the same month. The House approved the legislation in May.

The mortgage legislation would help lenders like Countrywide, which was acquired by Bank of America last week, by allowing them to transfer their distressed loans to the federal government, avoiding potentially huge losses if borrowers continue to default on their mortgages.

The bill also raises the size of loans that can be purchased by the government-backed mortgage companies Fannie Mae and Freddie Mac, funds a program for cities to buy foreclosed properties, and increases federal support for consumer credit counseling programs.

Meanwhile, the nation's foreclosure rate continues to skyrocket: In May, 261,255 homes went into foreclosure, up 7 percent from the month before and up 48 percent from May 2007. In Massachusetts, 6,676 foreclosures were reported in May, according to RealtyTrac.

In states like Nevada that have been particularly hard-hit by the foreclosure crisis, as many as 1 in 118 houses went into foreclosure in May alone.

The House of Representatives has passed a version of the housing bill, and Dodd said in June that he expected the Senate to pass its version of the legislation in time to reconcile the two bills and send the legislation to the White House by Independence Day.

However, the bill was delayed on the Senate floor when Senator John Ensign, Republican of Nevada, used a parliamentary move to block a vote in late June. Ensign wants to add a provision to the bill that would extend a renewable energy tax credit, according to a spokesman.

Still, Democrats won a key procedural vote that advanced the bill on the Senate floor yesterday and are confident they will pass the measure by the end of the week. The House and Senate must then reconcile their bills before sending the legislation to the president for his signature.

After initially signaling approval of the bill, the White House issued a veto threat, singling out for criticism a proposed $4 billion worth of grants to municipalities that would help cities and towns buy foreclosed properties. Backers of the provision say buildings vacated as a result of foreclosure foster crime and may trigger a downward spiral of property values in vulnerable neighborhoods, and that the funds would allow cities and towns to resell or redevelop the properties.

But Tony Fratto, a White House spokesman, said the $4 billion would not help homeowners since the properties have been foreclosed, and would most likely benefit the banks that now own the properties.

"The principal beneficiaries of a plan like that wouldn't be homeowners, it would be private lenders who foreclosed on borrowers," Fratto said. "It doesn't do anything to help homeowners who are struggling."

Some Republicans have also seized on the reports of Dodd's loans in an effort to delay the bill. Countrywide, formerly the nation's biggest subprime lender, gave the senators preferential loans under a company program called "Friends of Angelo," named for Angelo Mozilo, the company's former CEO.

Portfolio magazine, which first reported the loans in June, obtained e-mails showing that Mozilo ordered employees to "take off 1 point" on a new loan to Conrad in 2003.

If Dodd or Conrad knowingly accepted a lower rate than was available to the general public, it would be a violation of Senate ethics rules.

Both senators have denied knowing they received a special deal on two home loans they refinanced; Dodd said he and his wife knew they were in the company's "VIP" program but believed the status was related to their good credit record, and not his position as a senator.

In a letter to Frank, however, 19 Congressional Republicans asked him to delay passage of the bill until he can convene hearings into the Friends of Angelo program.

"My concern is, did a mortgage lender engage in activity aimed at getting sweetheart deals to powerful legislators that kicked out on the other end in the form of legislation that will save them billions and billions of dollars?" said Representative Jeb Hensarling, Republican of Texas, the author of the letter. "When you see this much smoke, I think you're negligent if you don't at least look for the fire."

But Frank said the issues of Dodd's loan and the mortgage bill were unconnected, and he saw no purpose in holding hearings into a lender that no longer exists.

Frank and Dodd warned that continued delays would take a toll on the economy.

Dodd, a five-term senator who ran for president this year, had been mentioned as a possible vice president on Barack Obama's ticket.

But political analysts said controversy over his mortgages could endanger his chances of winning a spot on the ticket.

"This doesn't play well," said Ken Dautrich, a pollster and public policy professor at the University of Connecticut.

"It affects his credibility, when he's accused of wrongdoing, essentially in the area where he's trying to legislate."

Correction: Because of a reporting error, a story on Page One of yesterday's Globe misidentified the year Senator Kent Conrad, Democrat of North Dakota, refinanced his home with Countrywide Financial Corp. The year is 2004.