A key Democrat in Congress is planning to introduce legislation in the next few weeks that would engage the Federal government in directly bailing out troubled homeowners unable to afford their current mortgages. The plan will clearly set up a showdown with Bush administration officials that have so far strongly favored a private-sector resolution to the current industry crisis. Under the plan being floated by House Financial Services Committee Chairman Barney Frank (D-Mass.), the federal government would provide $15 billion over five years to fund an as-of-yet unspecified "federal entity" -- Reuters reported Thursday that the "entity" is likely to be the Federal Housing Administration -- to buy bad mortgage debt in an effort to refinance troubled borrowers into FHA-insured mortgages. According to a Reuters report, Frank is positioning the plan as anything but a bailout, comparing the plan to investors "having lobotomies." The effort to help troubled borrowers, however, may cost more than than the estimated $15 million; Moody's Economy.com economist Mark Zandi said in testimony earlier this week to the House Financial Services Committee that the total cost of a borrower bailout effort could be closer to $250 billion. The expected bill will also include so-called bankruptcy cram-down legislation that would allow judges to modify mortgage loan principal amounts during Ch. 13 debt restructurings, a proposal that has met with vehement resistance from industry participants, including the Mortgage Bankers Association. The Wall Street Journal reported yesterday that Frank also intends to float a seperate proposal to provide up to $20 billion to allow local states and munipalites to buy foreclosed properties in an effort to preserve neighborhood stability. Congressional showdown The plan, however, has met with stiff resistance in the White House. CNN Money reported Thursday that President Bush has vowed to veto the proposed bill, saying that it will worsen the housing crisis rather than solving any market problems:
"The Senate is considering legislation that would do more to bail out lenders and speculators than to help homeowners keep their homes," he said. "The Senate bill would actually prolong the time it takes for the housing market to adjust and recover, and it would lead to higher interest rates."
The Mortgage Bankers Association has hailed the Bush Adminstration's veto threat, especially around the issue of bankruptcy reform. “We fully concur with the Administration’s analysis that this bill would very likely prolong the amount of time it would take for the housing market to recover from the current downturn," said David Kittle, the MBA chairman-elect. Despite the adminstration's threats of veto, Senate Democrats appear undeterred, believing they can generate the support needed to push the bill into law regardless of any veto. Via a Reuters report filed Thursday afternoon, Senate Majority Leader Harry Reid (D-Nev.) said that he planned to defy any veto from the White House. Democrats assert that voluntary industry measures currently put into place, including the HOPE NOW Alliance and Project Lifeline initiative, aren't accomplishing enough and that more needs to be done to help troubled homeowners.