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Industry’s hand seen in housing measures before Congress

WASHINGTON—Even supporters acknowledge that the Senate’s housing bill is a partial fix for growing problems in the residential real estate market.

That’s why congressional Democrats are rolling out more aggressive responses, most prominently a plan for the government to insure up to $400 billion in troubled mortgages, which would be refinanced at more affordable rates. Some in the banking industry are warming to the idea, hoping it would place the mortgage mess in the rear view mirror.

Based on the details of a measure expected to move toward passage in the Senate last Wednesday, consumer groups worry that legislation emerging from Congress will mostly reflect the interests of housing developers and mortgage lenders, not homeowners. The White House is also opposed to the bill, with spokeswoman Dana Perino saying it would “do more harm than good.”

Groups representing the mortgage and homebuilding industries – both of which have been slammed by surging foreclosures, falling home sales and sinking prices – have played a key role in shaping housing legislation and have been pleased with the results so far as they look for ways to emerge from the housing morass.

Even if Democrats and Republicans could compromise, some analysts question whether Congress has the ability to tackle the housing market’s problems, which threaten to worsen.
Gerald O’Driscoll, a senior fellow at the libertarian Cato Institute, suggested lawmakers’ growing focus on housing may be more reflective of election-year politicking than realism about the government’s ability to fix the problem.

“They have to be seen to be doing something,” O’Driscoll said.

The National Association of Home Builders, which spent $3.2 million lobbying in Washington last year, pushed for an emergency tax break that would let companies use losses from this year and next year to offset profits earned over the previous four years, instead of the usual two-year time frame.

That provision was included in the Senate’s legislation but excluded from a House bill introduced last Wednesday by Rep. Charles Rangel, D-N.Y., the Ways and Means Committee chairman. “We need to provide relief to the buyers and families themselves, not just the banks and builders,” Rangel said in a statement.

The builders’ trade group, however, found things to like in Rangel’s proposal as well, particularly a tax credit of $7,500 for first-time homebuyers, estimated to cost $3.8 billion over 10 years.

Earlier this year, the builders were so distressed by what they saw as lawmakers’ lack of attention to the housing market in an economic stimulus bill signed by President Bush in February that the trade group’s political action committee halted contributions to congressional candidates campaigns.

Consumer advocates are hopeful that House lawmakers will revive legislation that would let bankruptcy judges rewrite the terms of distressed mortgages. That provision was left out of the Senate bill amid intense opposition from the mortgage industry, led by the Mortgage Bankers Association, which says it would force lenders to charge higher rates to compensate for the added risk.

“Measures that will truly save homeowners from foreclosure do not currently have a good future,” said Alys Cohen, a staff attorney at the National Consumer Law Center in Washington.

In the coming weeks, attention is likely to build around a proposal to have the Federal Housing Administration, the Depression-era agency that insures mortgages, guarantee $300 billion to $400 billion in refinanced loans to troubled borrowers.

Lenders would first have to agree to take a loss on the mortgages, and borrowers would have to show they could afford to make payments on the new loans. While the plan would put public money at risk should homeowners default in greater-than-anticipated numbers, it could rescue hundreds of thousands of borrowers from foreclosure.

Sen. Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, and Rep. Barney Frank, D-Mass., are holding separate hearings on that idea this week.

In an interview, Frank said urgent action is needed. “If we were to wait three months, that would be very damaging,” he said.

Some investors in mortgage securities are likely to resist any plan that would mean a loss on their investments. But supporters within the industry say that loss is likely to be far greater when a foreclosed property is sold in a rapidly declining housing market.

“The industry is viewing this as a a serious proposal,” said Scott DeFife, senior managing director for government affairs at the Securities Industry and Financial Markets Association, Wall Street’s top lobbying group, which spent $5.7 million lobbying the federal government last year.

With economic concerns moving to the center of the presidential campaign, many mortgage industry insiders and experts believe the housing downturn has grown to the point where broader action in Washington is inevitable.

“What they’re doing so far is relatively small in relation to the size of the problem,” said Desmond Lachman, a fellow at the conservative American Enterprise Institute. “They’re going to have to come up with some big package…The longer you delay, the worse the thing becomes.”

— Associated Press

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