Moving Right or Dodging Bullets?
Image has not been found. URL: /wp-content/uploads/2008/09/frank1.jpgChair of the House Financial Services Committee Barney Frank (D-Mass.) (WDCpix)
As House and Senate leaders work to reconcile slight differences between bills addressing the nation’s growing foreclosure crisis, some affordable housing groups say the most effective solutions have been abandoned.
Provisions to curb predatory lending practices, sever the cozy relationship between banks and appraisers and force lenders to refinance troubled loans are either absent or too watered down to be effective, advocates say. Though these proposals have all been tossed around Capitol Hill in recent months, opposition from Republicans and the powerful finance industry means they have no chance of passing. The resulting compromise, these housing groups contend, is inadequate to tackle the accelerating crisis.
Illustration by: Matt Mahurin
“It’s definitely a step in the right direction,” said John Taylor, president and CEO of the National Community Reinvestment Coalition, “but it’s a baby step compared to the extent of the problem.”
“Baby step” is hardly the attribution one might expect for the largest overhaul of the mortgage lending industry since the Great Depression. But the housing debate is indicative of the legislative pickle faced by Democrats this year as they try to thread the needle of acceptance between the White House and the populist base that swept them into power in 2006.
While House Democrats have been able to pass a number of consumer friendly bills catering to that constituency, the same has not been true in the Senate, where 60 votes are required to move anything. Instead, on must-pass legislation like the foreclosure package, party leaders in both chambers have been pulled to the right for the sake of legislative success — often to the disgust of liberal voters and consumer groups. Now, they are poised to pass a foreclosure bill that prioritizes lenders above homeowners.
The current housing proposal, for example, would expand the Federal Housing Admin. to supply $300 billion to back the refinancing of troubled mortgages at lower rates. But lenders, who would take a loss, would not be obligated to participate. Many housing advocates favor an approach that would empower bankruptcy judges to force the banks to accept new financing terms under certain conditions.
“To make home ownership viable in this country again, we can’t just rely on the same lending industry that started this crisis to begin with,” Josh Nassar, vice president of federal affairs at the Center for Responsible Lending, said, decrying the thought of voluntary participation.
An amendment giving the courts a role in the refinancing process was passed by the House Judiciary Committee in December. But the push is viewed as a deal-killer in the Senate, where Republicans have adopted the industry argument that forcing lenders to refinance some loans will result in higher rates for everyone.
“It never gained traction,” said Sharon Price, director of policy at the National Housing Conference, a nonprofit affordable housing coalition.
Housing advocates are also wary of the funding mechanism for the FHA expansion. While the House bill would supply the $300 billion (estimated to cost $1.7 billion) using taxpayer funds, the Senate has proposed instead to use temporary contributions provided by Fannie Mae and Freddie Mac, the nation’s largest mortgage financers.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, hoped to use the Frannie-Freddie funding for low-income housing, not the foreclosure bailout. But Sen. Richard Shelby (Ala.), the highest ranking Republican on the Senate Banking Committee, insisted that the FHA expansion not come from taxpayers. The Senate approach was not greeted warmly by some advocates.
“After the $30-billion, taxpayer-guaranteed bailout of Bear Stearns, and the $25-billion, Senate-passed, taxpayer-funded bailout for homebuilders,” Sheila Crowley, president of the National Low Income Housing Coalition, said in a statement last month, “for committee Republicans to insist that the taxpayers should not pay $1.7 billion to prevent homeowners from losing their homes, has to be called what it is — hypocrisy.”
Housing advocates also wonder why Congress hasn’t fought harder to include more anti-predatory lending provisions. Senate Banking Committee Chairman Christopher Dodd (D-Conn.) has introduced a comprehensive bill, which is popular among consumer groups. But most provisions haven’t entered the foreclosure-prevention discussions. Some housing advocates say that’s a mistake.
“[The Dodd bill] would prohibit the kinds of practices which got us into this foreclosure crisis to begin with,” Taylor, of the NCRC, said. “It would have outlawed the types of actions that caused the problem … Why that isn’t law in this year, in this Congress, is beyond my comprehension.”
The House passed a similar anti-predatory lending bill in November, though that proposal is less popular among consumer and community groups. Steven Adamske, a spokesman for the Financial Services Committee, said those bills are on the back-burner because congressional leaders want to focus now on rescuing troubled homeowners from foreclosure. The anti-predatory lending bills, he said, are forward-looking, preventative measures that Frank and others hope to take up later.
Time is not on their side. National foreclosure filings totaled more than 261,000 last month, according to RealtyTrac, an online foreclosure database. The figure marks a 48 percent hike from the same month a year ago, and a 7 percent jump from April.
Meanwhile, the Senate easily passed two procedural votes on its housing bill this week, signaling that lawmakers from both parties are ready to prove to voters that they recognize the crisis. But the bill stalled after Sen. John Ensign (R-Nev.) insisted that an amendment extending roughly $6 billion in tax credits for renewable energies be included. The impasse is likely to push the vote beyond the week-long July 4 recess, scheduled to begin Friday. Complicating matters, the White House has threatened to veto both the House and Senate bills.
The delay gives negotiators more time to iron out differences and convince the White House to get on board. Still, observers concede the difficulty facing party leaders as they try to hash out a compromise.
As Price, of the NHC, said of Frank: “He’s not in an easy spot. I wouldn’t say he’s moving right. I would say he’s dodging bullets.”