Writing for Huffington Post, Peter Dreier explores the politics behind last week's House passage of a sweeping housing bill. The bill would expand FHA loan guarantee programs by $300 billion, helping troubled borrowers refinance into more affordable mortgages and making permanent higher loan limits for FHA, Fannie Mae and Freddie Mac (see Inman News story).
The Bush administration, dismissing the FHA expansion program put forward by Rep. Barney Frank as a bailout of speculators and opportunistic lenders, has threatened to veto the bill -- despite Democrats' attempts to sugar-coat the plan by packaging it with action on issues the administration has been pushing for some time, such as FHA modernization and GSE reform.
Among the 39 Republicans crossing the aisle to vote for the bill were "arch conservative" Rep. Gary Miller, whose Southern California Congressional district has one of the highest rates of foreclosure in the U.S. Dreier, who's the director of the Urban & Environmental Policy program at Occidental College, surmises that Miller's support for the bill was based on practical, rather than ideological reasons.
Republicans who voted for the bill "bucked enormous pressure from their party leaders and from the White House," Dreier says -- because they expect Democrats will use the issue "to make their case that (presidential candidate Sen. John) McCain and Congressional Republicans are woefully out-of-touch with the daily lives of ordinary Americans, hanging the foreclosure crisis around Republican necks."
The economy and housing issues are likely to be major factors in the November elections in places like Ohio, where close races are expected in six of 18 contests. Five of the six seats considered "up for grabs" are held by Republicans, Dreier says.
Dreier also notes that the folks at the Association of Community Organizations for Reform Now (ACORN), who organize low-income families to take grass-roots political action, are targeting Minnesota Republican Senator Norm Coleman.
ACORN published a "report" last week (more of an editorial) rounding up some election contributions Coleman has taken from the banking industry. Coleman's fellow Senate Banking Committee members have also been the recipients of the industry's largess, regardless of party affiliation. But an ACORN member claims in a press release that Coleman’s "votes against foreclosure assistance ... have been bought and paid for by the mortgage industry."
ACORN is particularly miffed that Coleman (along with just about every other Senate Republican) blocked a bill, the "Foreclosure Prevention Act," that would have allowed bankruptcy judges to "cram down" the principal on mortgage loans (The Senate eventually passed a watered-down version of the bill that consisted mostly of tax breaks for homebuilders and other businesses hit hard by the downturn).
One problem with Dreier's thesis (that Democrats can use Frank's FHA expansion plan as a club against Republicans in November) is that polls have shown the public has a deep aversion to anything that smacks of a bailout. Although proponents of Frank's plan (and bankruptcy cramdowns) say speculators will be excluded, it's not easy to explain in a soundbite the finer points of the FHA expansion legislation that are intended to achieve that goal (owner-occupied homes only, haircuts for lenders, and exit fees charged to borrowers who sell or refinance at a profit). Even supporters acknowledge that taxpayers could end up footing a bill that could run into the billions (CBO says the program would require a 2 percent subsidy, or a $1.7 billion bill to taxpayers to help 500,000 borrowers over 5 years).
The potential bill for taxpayers is rather minuscule, however, when compared with the losses homeowners and lenders have already incurred and are still facing. It seems rather unlikely that Republicans could turn the issue around and attack supporters of Frank's plan as reckless.
But regardless of whether Frank's amounts to a bailout, some think it would do more harm than good. Mortgage broker and syndicated columnist Lou Barnes -- who's been urging more drastic government action -- thinks Frank's plan would only prolong the pain of the housing downturn by delaying, but not preventing, many foreclosures. That's because a lot of folks who are in trouble had no business buying a home , he says in his latest column, "Bring on the short sales, foreclosures."
"The marketplace can absorb the volume, but it needs help," Barnes writes. The best thing the government can do is help make more financing available so homebuyers with good credit can buy foreclosed properties, he says. "Wise, tough-love policies" would encourage the rapid recycling of foreclosures and get loan servicers "terrified of value second-guessing" to accept short-sale offers, he says.
While Democrats didn't appear to have the votes Thursday to override President Bush's threatened veto of Frank's plan (the vote went 266-154, with all of the nays coming from GOP members), it looks like we'll be hearing about it for a long time if they do manage to force the administration's hand (and putting a bill on the president's desk could be a long shot, given the more conservative nature of the Senate). Depending on who ends up in the White House next year, the FHA may eventually end up going down this road -- although by then, it will be too late to help many of the 2 million borrowers Frank says might take advantage of the program.
If the Bush administration sticks to its guns, it will be interesting to see just how rapid and efficient the process of "recycling of foreclosures" can be. In the current environment, with buyers and lenders in many markets still fearful of falling prices, the answer has often been not very.
If there's one bright spot in the whole debate, maybe it's that suddenly arcane details of housing finance that were under the general public's radar a few years ago have become the hot topics of this election, instead of the usual emotional wedge issues like abortion and gun control.
