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Dems Squeezed on Housing Bill

Image has not been found. URL: /wp-content/uploads/2008/09/frank2.jpgRep. Barney Frank (D-Mass.) (WDCpix)

As House Democrats advance proposals this week to address the ailing housing market, they find themselves confronting an unusual critic: their liberal base.

On Tuesday, a large group of consumer, labor and civil liberties organizations sent a letter urging lawmakers to make their foreclosure legislation more homeowner-friendly by empowering bankruptcy judges to alter the terms of troubled mortgages. That provision is strongly opposed by most congressional Republicans, causing Democratic leaders to drop it in the name of pragmatism and bipartisan compromise.


Illustration by: Matt Mahurin

But 33 national advocacy groups — including the Leadership Conference on Civil Rights, Consumers Union and the NAACP — are hinging their support for the housing package on the inclusion of the bankruptcy language.

“[C]ountless families are expected to be foreclosed upon in this crisis because they entered into abusive, equity-stripped loans with little or no underwriting,” the groups wrote in an Apr. 22 letter to House lawmakers. “Voluntary industry efforts are not enough.”

This episode demonstrates the dilemma dogging Democrats since they took control of Congress last year. From the left, they face pressure to push the consumer-friendly agenda they promised during the 2006 elections that swept them into power. Yet the thin majority they command on the Hill is insufficient to accomplish many of those goals — particularly with the Bush administration waiting nearby, waving its veto pen.

On a number of issues, the trend has been more inconvenience than catastrophe. House leaders, for example, have been able to have their way with bills addressing children’s health care, stem cell research, federal wiretapping and energy reform, to name a few. None ever had a chance of sneaking past President George W. Bush, but the efforts played to the party’s populist base, while the GOP opposition energized it. On these matters, Democratic leaders appear willing to await the moment when they might control larger congressional majorities and, perhaps, the White House.

But the same trend hasn’t followed must-pass legislation, like that addressing the housing crisis. Instead, the sharply partisan dynamic has forced Democrats to make compromises — often at odds with their most loyal supporters. This is largely due to the power of Senate Republicans, who have shown an uncanny aptitude for killing bills they don’t like.

Stuck in a familiar pickle, Democratic leaders are left in the unenviable position of pushing bills they themselves concede don’t go far enough to address the problems they’re designed to tackle. The trend has been most glaring as it relates to Iraq war spending, with Republicans all but daring their colleagues across the aisle to withhold funding in the midst of the conflict — and with Democrats folding each time.

In the case of the foreclosure saga, House lawmakers are pushing a proposal to expand the Federal Housing Admin., supplying $300 billion in government-backed mortgage refinancing for homeowners. Rep. Barney Frank (D-Mass.), chairman of the House Services Committee and sponsor of the proposal, says his bill would prevent as many as 1 million foreclosures. The committee is set to vote on Frank’s bill Thursday.

A second House bill, granting another $15 billion to the hardest-hit communities, passed through the same committee Wednesday. Consumer advocates applaud those steps, but say they’re insufficient to protect homeowners through the crisis.

“We are concerned that the voluntary nature of the legislation will not be enough to help homeowners in danger of foreclosure,” the national advocacy groups wrote.

The coalition is pushing the adoption of another proposal, sponsored by Reps. John Conyers Jr. (D-Mich.) and Steve Chabot (R-Ohio), that would empower bankruptcy courts to knock down mortgage principals to reflect the current value of homes and reset interest rates to levels more affordable to individual homeowners. The bill passed through the House Judiciary Committee in December, but similar language failed to survive bipartisan negotiations in the Senate. That puts House leaders in a familiar bind. Both Frank and House Speaker Nancy Pelosi (D-Calif.) support the bankruptcy proposal, but have indicated they can’t include it due to GOP opposition in the Senate.

“Barney is being a realist,” said Barbara Sard, director of housing policy at the Center on Budget and Policy Priorities, a liberal policy watchdog.

Bolstering that Republican opposition is the enormous finance industry, which has lobbied heavily against the Conyers-Chabot bill. The bankers say that forcing lenders to refinance troubled mortgages will increase rates for other borrowers and first-time homebuyers.

Consumer groups dispute that claim, arguing that court oversight ensures that any refinancing mandates arrive fairly.

“These are federal judges,” said James Dau, spokesman for AARP, which also signed the letter. “We’re not talking about pulling a decision out of a hat.”

Prominent economists have weighed in to support the bankruptcy provision. Lawrence Summers, economics professor at Harvard University, pointed out to Senate lawmakers earlier this month that there’s something amiss about a system that allows bankruptcy judges to modify loans on vacation homes, yachts and other debts, but not on primary homes.

“It is very difficult to defend, at a time like the present, a bankruptcy code that provides more protection for the third home of a wealthy family than for the first home of a working family,” Summers said. “Properly circumscribed bankruptcy reform could, through its direct and indirect effects, facilitate a significant amount of private mortgage relief.”

Still, even proponents of the bankruptcy provision concede the difficult road ahead.

Following passage of the Senate’s Foreclosure Prevention Act earlier this month, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) summarized his party’s frustration. “Quite candidly,” he said, “what we’ve done does not quite live up to the title.”

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