Congress considers measures to curtail foreclosure crisis

Six months ago, the question was whether Congress would take action to address the housing crisis and stem the wave of foreclosures, but now it's widely assumed lawmakers will pass some sort of legislation aimed at ameliorating conditions. What remains to be seen is exactly when a bill emerges, what it will look like and whether President Bush will sign it into law.

House and Senate leaders are expected to hammer out a final bill during the next eight weeks because Congress will be in recess for all of August, allowing members an opportunity to spend part of the summer at home campaigning for re-election. Congress is in an extended Memorial Day break with lawmakers scheduled to return to Capitol Hill June 3.

David Cherry, communications director for Rep. Shelley Berkley, D-Nev., said last week he expected Congress would complete its work on the housing crisis before the end of July.

The debate over the federal government's proper role in dealing with the foreclosure crisis began last year with the Bush administration and most congressional Republicans arguing it was prudent to let the free markets sort out problems in the housing sector. But when the mortgage crisis dragged on into 2008 and worsened with each passing month, threatening the health of the overall economy and leading to the demise of the investment bank Bear Stearns in March, more and more Republicans began to join Democrats in asserting the government should take steps to intervene.

Because Nevada is at the center of the housing crisis, with the Las Vegas area posting some of the highest foreclosure rates in the nation, both Republicans and Democrats in the state's congressional delegation have been amenable for months to the idea that Washington should play a substantive role in addressing the crisis.

"Nevada has been hit harder than any other state by the foreclosure crisis and many families in our state are hurting. For every home that goes into foreclosure, entire neighborhoods experience declining property values. The housing crisis in this country is dragging down the economy and threatening working families," Rep. Dean Heller, R-Nev., said in a statement issued when the House on May 8 approved the American Housing Rescue and Foreclosure Prevention Act of 2008, also known as House Resolution 3221.

The bill would expand a Federal Housing Administration program that insures residential mortgages, allowing FHA to insure up to $300 billion in mortgages if private lenders agreed to write down the principal balance on those loans. The expanded insurance plan would be available only to the owners of primary residences, excluding investment properties and second and third homes. According to provisions of the bill, borrowers who benefit from the reduction of their loan balance and receiving FHA insurance protection would be required to share with the government in the future a portion of the profit, if any, that arises from the sale of their home.

The Congressional Budget Office, the nonpartisan entity that estimates the costs of various legislative proposals, said up to 500,000 mortgages would be refinanced over the next five years at a cost to taxpayers of about $2.7 million.

The House bill also strengthens regulation of the Federal National Mortgage Association, provides $230 million for financial counseling to help families stay in their homes, gives first-time home buyers a refundable tax credit of up to $7,500 that would be paid back over 15 years, and helps returning soldiers avoid the loss of their home by extending from three months to one year the amount of time a lender must wait before initiating a foreclosure process to take back the residence of a serviceman who fell behind in mortgage payments.

All three of Nevada's members of Congress -- Republicans Heller and Jon Porter, along with Democrat Shelley Berkley -- voted in favor of the bill that passed the House 266 to 154. Heller and Porter were among only 39 Republicans to support the bill.

"This package will help families stay in their homes and will aid in preventing future foreclosures," Berkley said in a statement. "And it provides incentives designed to get properties out of foreclosure by providing families new opportunities and resources to help them become homeowners."

Cherry said that members of Congress all across the nation -- in places where home prices have dipped modestly as well as in hard-hit states such as Nevada, Florida and California -- are feeling pressure from constituents to do something about the housing crisis.

"Whether it's in (Berkley's) community or others, members of Congress are sensitive to what is happening to the families they represent, and they know the families are looking to them for action. And they want to be able to come home and say, 'We got the job done.' So, no question about it, it's definitely driving the legislation through Congress," Cherry said.

In the Senate, the Banking Committee last week approved housing crisis relief legislation by an overwhelming vote of 19 to 2. The Senate committee's bill was similar to the House bill in that it includes a provision for helping homeowners at risk of default reduce the principal balance on their loan with the help of FHA insurance. The assistance program would be available for three years under the Senate bill, compared to five years under the House bill.

The full Senate is expected to take up debate of the housing bill shortly after Congress returns to Washington next week. Assuming the Senate approves a bill, it would then go to a conference committee with members of the House before a final vote is taken in both chambers.

Both of Nevada's senators, Democrat Harry Reid and Republican John Ensign, are supportive of some sort of congressional role in stemming the foreclosure crisis. In the early stages of the housing downturn, Ensign was wary of government meddling in the private mortgage markets, but in recent weeks he has stated he believes some form of carefully considered government intervention is now necessary.

As majority leader in the Senate, Reid has been speaking out in favor of strong government action for many months.

"I am doing everything I can here in Nevada and back in Washington to bring an end to the crisis so we can stabilize our economy and keep working families in their homes," Reid told the Nevada chapter of the National Association of Hispanic Real Estate Professionals in March.

Several weeks ago, President Bush threatened to veto any housing crisis legislation that he said would put taxpayers' money at risk and "reward speculators," but the president softened his stance after the Senate Banking Committee approved its bill with Richard Shelby of Alabama, the ranking Republican on the committee, giving it his blessing.

A statement made by Tony Fratto, a White House spokesman, after the committee vote was noticeably more conciliatory than previous White House pronouncements on the issue.

"We'll look forward to seeing the details of the bill, especially provisions to expand programs of the Federal Housing Administration," Fratto said.

At the heart of the legislative efforts to address the mortgage crisis are the twin objectives of stopping foreclosures while halting the decline in home prices, which has rattled Wall Street for more than a year.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said that putting the housing market back on solid footing was of paramount concern to him.

"The primary goal here is to keep people in their homes, but also to establish a floor, a bottom to all this," Dodd said at the time his committee approved the legislation.

The slow erosion of home values across the country has caused major financial institutions in the United States and abroad to write off losses amounting to hundreds of billions of dollars. Mortgages packaged as securities known as collateralized debt obligations, CDOs, or collateralized mortgage obligations, CMOs, continue to weigh on markets as the slide in home prices continues.

The widely followed Standard & Poor's/Case Shiller national home price index for the first quarter of 2008 showed that single-family home prices fell a record 14.1 percent nationwide from the first quarter of 2007. The biggest drag on the index of 20 major metropolitan areas was Las Vegas, which was down 26 percent, followed by Miami, down 25 percent, and Phoenix, down 23 percent.

Lawmakers are aware that the major providers of funding for residential U.S. mortgages, Fannie Mae and Freddie Mac, remain vulnerable to the effects of the decline in home prices.

Anticipating further declines in the coming months, Moody's Investors Service recently downgraded Freddie Mac's financial strength rating and estimated that Freddie Mac will be forced to deal with up to $7.5 billion in total losses from delinquent mortgages in the next two years. Following the lead of Fannie Mae, Freddie Mac said it would raise more than $5 billion in new capital as a bulwark against any possible losses.

The Senate Banking Committee's bill would create a new Federal Housing Finance Agency to oversee lenders such as Fannie Mae and Freddie Mac, which are private companies but widely perceived as being assured of receiving government assistance in the event they encounter serious financial problems.