WASHINGTON — An offer by Republicans for the government to arrange bargain mortgage loans carrying 4 percent interest rates for millions of homeowners as a way to boost the economy was rejected in the U.S. Senate on Thursday.
Senators voted 62-35 to kill the plan, which was proposed as an amendment to a $900 billion economic recovery plan the Senate will continue to debate on Friday. Its fate was sealed when senior Democrats, including Senate Majority Leader Harry Reid, came out strongly against it.
Republicans promoted the substitute, sponsored by Sen. John Ensign, R-Nev., as the centerpiece of a “fix housing first” effort to reshape the stimulus bill. But Democrats in control said it was badly flawed and risked deepening the recession rather than pulling the nation out of it.
The vote fell mainly along party lines. All Democrats voted against it, but Ensign also lost support from five Republicans and the Senate’s two independents.
The amendment would have offered 30-year mortgages of between 4 percent and 4.5 percent interest rates for credit-worthy homeowners to refinance their houses or buy new ones. Ensign and Republican leaders advertised roughly 40 million homeowners could save hundreds of dollars each month that they could spend to revive the flagging economy.
“This is like a $400 a month tax cut for the next 30 years,” Ensign said.
But Sen. Charles Schumer, D-N.Y., in a Senate speech and in talks with reporters said Republicans vastly underestimated the costs of the effort, which he said could reach $1 trillion. The $300 billion the Republicans would set aside would cover only a small percentage of mortgages, he said.
At that level, he said, the bill would “fail miserably” to stabilize the housing market.
If you believe the GOP math, “I have a hedge fund for you to invest in,” Schumer said.
Also, the amendment would not prevent bargains from going to wealthy people who hardly need the help, he said. On the other hand, people with credit problems facing foreclosure probably wouldn’t qualify.
Schumer added the refinancings will amount to a “huge windfall to the banks” which will collect thousands of dollars in fees and closing costs for each mortgage that is rewritten.
Sen. Patty Murray, D-Wash., said the amendment was misdirected.
“A 4 percent loan does you absolutely no good if you do not have confidence you will have a job and income,” Murray said.
“The refinancing of mortgages doesn’t help the housing market,” Schumer said. “If you refinance, you are not buying up a home that is sitting on the market. The only thing refinancing does is put some money in people’s pockets, and there is a far more efficient way to do that which is to give them the money directly, which is what the Obama plan does.”
The overall stimulus bill formed largely by Senate Democrats contains President Barack Obama’s plan to offer payroll tax credits of $500 per individual or $1,000 for a married couple.
Employers would reduce the taxes that are withheld in paychecks.
Ensign disputed the criticism, saying the amendment was carefully thought out. He said afterwards the defeat was not surprising.
Democrats are growing impatient with the prolonged consideration of the stimulus bill, which Obama is urging Congress to complete quickly in hopes of stemming the economic decline.
Although the low-cost mortgages had gained the most attention, Ensign’s amendment contained other elements that would have stripped billions of dollars in spending from the stimulus bill, essentially forcing the Senate to rebuild key pieces from scratch.
“We knew the Democrats would never accept it,” Ensign said.
Schumer and Reid said housing help is on the way. The Obama administration already has pledged new initiatives to boost housing in its management of $350 billion of bank bailout money that Congress authorized several weeks ago.
“If there is anything to be done in the future we will wait until we get there,” Reid said. “Right now we want to get this economic stimulus bill done.”
Contact Stephens Washington Bureau Chief Steve Tetreault at stetreault@ stephensmedia.com or 202-783-1760.