(Update 2; revises headline, adds commentary on New Deal) Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said in a letter sent to Senate Majority Leader Harry Reid (D-Nev.) that any economic stimulus plan drafted by Congress should include a host of mortgage-related reforms as part of the package. Chief among Dodd's proposals is the creation of a Federal Homeownership Preservation Corporation that would purchase distressed mortgages and refinance troubled borrowers into 30-year fixed FHA-insured or GSE-eligible loans. Dodd wants $10 to $20 billion to capitalize the new government agency. While numerous media outlets are inexplicably crediting the idea to a recent paper published by the American Enterprise Institute, the idea seems to actually have its roots in the Home Owners' Loan Corp. that arose out of Roosevelt's New Deal in the 1930's. Not everybody is crazy about the idea, per Bloomberg:
Instead of creating a new program, the government should offer tax breaks to buyers of distressed real estate, said David Castillo, who trades asset-backed, commercial-mortgage and collaterized debt obligation bonds at Further Lane Securities in San Francisco. "This seems crazy to me to form another government (taxpayer) corporation to bail out Americans' poor decision making in assuming obligations that they could never have possibly met," Castillo wrote in an e-mail.
Dodd also wants $10 billion to scale up HUD's Community Development Block Grant (CDBG) program, allowing it to purchase foreclosed homes, either for rehab and resale, as rentals, or for demolition. As HW has covered recently, there are plenty of cities dealing with the problem of long-vacant houses and lenders abandoning their claims to title. Dodd also wants to include the FHA Modernization Act, as well as boosting conforming loan limits temporarily, as part of the $150 billion economic stimulus plan the Bush adminstration has asked for. Dodd's proposal would seem to represent somewhat of a departure from the more general economic measures the Bush administration had said earlier that it was looking for. Treasury Secretary Henry Paulson had suggested the administration was looking to stimulate growth in other areas of the economy while the housing and mortgage crisis sorts itself out. “What we're trying to do is to provide help to the rest of the economy … to help it better withstand and weather the effects that are coming about largely as a result of this decline in housing prices,� he said. Editor's note: I'd written earlier that Dodd's proposal was closer to the RTC of the 1980's, but astute comments by HW reader Kevin have quickly disavowed me of that notion, and I've updated this story accordingly as a result.