The chairman of the Senate Banking Committee wants to create a Federal Homeownership Preservation Corp. and provide it with up to $20 billion to purchase mortgages from lenders and allow homeowners to refinance into government-backed, fixed-rate mortgages.
Sen. Chris Dodd, D-Conn., said the effort should be part of an economic stimulus bill being drafted by lawmakers, along with $10 billion in grants to local governments allowing them to buy and rehabilitate foreclosed homes
The Bush administration has proposed injecting $140 billion to $150 billion into the economy through tax cuts, rebates and incentives, but the president’s stimulus plan included no new initiatives targeted at housing.
“The collapse of the housing market is a prime cause of the economic problems that we are facing today,” Dodd wrote Senate Majority Leader Harry Reid, D-Nev., in a letter Tuesday.
As proposed Jan. 18, the Bush administration’s economic stimulus plan would rely largely on tax rebates of $800 to $1,600 per family. Now, the administration and Congress must reach a compromise on legislation that would implement an economic stimulus package, which could include additional measures.
Dodd said a stimulus package should help homeowners avoid foreclosure, provide local governments with funds to buy foreclosed homes, and include a temporary increase in the $417,000 conforming loan limit on mortgages eligible for purchase or guarantee by Fannie Mae and Freddie Mac. Dodd also wants to incorporate pending legislation that would expand FHA loan guarantee programs into the stimulus plan.
As envisioned by Dodd, the Federal Homeownership Preservation Corp. would purchase troubled mortgage loans from lenders and investors at a discount, and move homeowners into 30-year fixed-rate mortgages backed by the FHA, Fannie or Freddie.
Dodd maintains that the corporation would not be bailing out lenders and investors, because it would buy mortgages only from those willing to take a “haircut” by selling at steep discounts. After getting off the ground with $10 billion to $20 billion in initial capital, Dodd maintains the corporation would be self-sustaining.
Dodd also requested $10 billion for Community Development Block Grants that would allow local governments to buy foreclosed homes and rehabilitate, resell or rent them. In some cases, local governments might also choose to demolish foreclosed homes and bank land for future development.
“Foreclosed and abandoned homes are decimating many communities around the country,” Dodd said. “They lead to a cycle of disinvestment, crime, falling property values and property tax collections, thereby leading to service cuts and further disinvestment.”
Money can be distributed “very quickly” through the Community Development Block Grant process, Dodd said, helping “stop this devastating process.”
The Bush administration had previously created a new Federal Housing Administration loan guarantee program, FHASecure, to help borrowers who have already defaulted on their mortgages refinance into fixed-rate loans, and encouraged loan servicers to engage in voluntary workouts with troubled borrowers.
Although the administration supports legislation to expand FHA loan programs, it has tied any increase to the conforming loan limit to legislation reforming oversight of Fannie Mae and Freddie Mac.
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