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Senate Vote Clears Path For Housing Bill

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By LORI MONTGOMERY

The Washington Post

Published: July 11, 2008

WASHINGTON - A massive package of housing legislation that seeks to rescue hundreds of thousands of homeowners in danger of foreclosure while shoring up confidence in struggling mortgage giants Fannie Mae and Freddie Mac cleared a final procedural hurdle in the Senate on Thursday and was headed for passage.

After weeks of delay engineered by Republicans opposed to the bill, the Senate voted 84-12 to proceed to the final portion of the measure, Washington's most ambitious response to a foreclosure crisis that has cost 1.5 million families their homes and dragged down the broader economy.

The measure gained added urgency Thursday as Fannie Mae and Freddie Mac's stock prices continued to plummet, prompting talk of a public bailout for the government-chartered companies, which hold or guarantee the vast majority of the nation's mortgages.

Supporters said the housing package would restore investors' confidence by installing a strong new regulator and by permanently increasing the pool of loans the companies can handle.

The package will go back to the House, which already approved a version of the legislation. House leaders plan to make changes that would require both chambers to vote on the measure again before sending it to the White House.

"The hope is we can now talk to the Senate and, as a result, what we send them they can accept," said House Financial Services Committee Chairman Barney Frank, D-Mass.

Some Frustrated With Slow Pace
With 250,000 foreclosure filings recorded last month alone, even some supporters of the measure are growing frustrated with the glacial pace of a process that has already taken four months.

"We're almost to the point where what we're doing is too late," said Sen. Johnny Isakson, R-Ga. "If this thing doesn't get done by the end of this month, then we'll have missed a significant opportunity to make a difference."

Home prices have plunged more than 10 percent, and polls show that the economy is the top concern among voters, with one in four respondents saying they have been directly affected by problems in the housing market.

The borrowers most at risk of foreclosure are those who have fallen behind on their mortgage payments but cannot sell or refinance because the value of their homes has fallen so far that they owe more than their homes are worth.

The centerpiece of the housing package is a plan to rescue as many as 400,000 families by helping them trade exotic loans with rapidly rising monthly payments for more affordable mortgages backed by the federal government.

Under the proposal, the Federal Housing Administration would be authorized to insure up to $300 billion in new loans for families whose lenders agree to write down their debt to no more than 87 percent of their homes' current, reduced value.

The program would be temporary and would cost about $1.7 billion, assuming about a third of the new loans fail and the FHA were forced to take possession of the properties.

The cost would be covered by diverting a small portion of Fannie Mae and Freddie Mac's profits into a new fund that in future years would be used to finance affordable housing.

The package also contains a long-sought overhaul of the FHA and housing-related tax breaks worth $14.5 billion, including a credit of up to $8,000 for first-time homebuyers. It also would offer local communities $3.9 billion in emergency funds to purchase foreclosed properties in hopes of halting or preventing the spread of blight.

The emergency funding has drawn a veto threat from the White House, where officials say the money would amount to a bailout for the very lenders whose bad loans caused the mortgage crisis.

Sixteen governors, dozens of mayors and the Congressional Black Caucus are fighting to keep the money in the bill, but Frank said he planned to put it in a separate bill along with provisions for covering its cost.

Democrats Disagree On Loan Limit

Frank plans to make other changes to the bill, including delaying the effective date of the new regulator for Fannie Mae and Freddie Mac by six months. The immediate effective date preferred by the Senate "causes chaos," he said.

Congressional Democrats are also at odds over the size of the loans the FHA may insure and that Fannie Mae and Freddie Mac may buy.

The Senate bill would permanently increase the loan limit from $417,000 to $625,000, but House Speaker Nancy Pelosi, D-Calif., and others want to set it as high as $730,000. Although the Senate would adjust the limit by region to reflect median home price, the House wants the limit set at about 125 percent of the median price.

"There are other things I'd like to do, but we do want to get this done," Frank said, adding that he expected to send the measure back to the Senate within two weeks and on to the White House before the end of the month.

With the emergency funding for communities removed, Democrats and Republicans alike expect the president to sign the package, which contains some of the administration's top priorities for addressing the housing crisis, but some congressional conservatives continue to oppose the measure.

Sen. John Ensign, R-Nev., delayed the bill over the Fourth of July recess, insisting unsuccessfully that tax breaks for renewable energy be added.

Thursday, Sen. Jim DeMint, R-S.C., was threatening to delay final passage by refusing to grant unanimous consent to proceed to the final vote, even though the bill was expected to pass overwhelmingly.

"This is a $300 billion bailout for bad lenders that forces American taxpayers to foot the bill," said DeMint spokesman Wesley Denton. "Senator DeMint opposes this bill and believes it should be debated as long as possible."

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