Congress seeking action to help troubled homeowners

By Alison Vekshin  |   2008-12-22  |     NEWSPAPER EDITION

THE United States Congress will use the remaining US$350 billion in a bank-rescue package to force the Bush administration and President-elect Barack Obama into providing foreclosure aid for the rising number of people losing their homes, Bloomberg News reported.

Law makers will agree to release the funds in exchange for Treasury Secretary Henry Paulson and Obama agreeing to programs that cut interest rates and forgive a portion of a mortgage's principal, House Financial Services Committee Chairman Barney Frank said.

Frank said legislation was being drafted that will set the conditions on spending the cash after Paulson used almost half the US$700-billion Troubled Asset Relief Program to boost bank capital. Paulson resisted calls to support foreclosure relief.

"The Democrats are finally getting it, that this administration is not going to do anything to help homeowners, and they are getting more proactive," John Taylor, president of the National Community Reinvestment Coalition, said. "Paulson has had the chance to do something like this all along, but has chosen not to. I think he'll do it if a quid pro quo is held over him."

Frank, a Massachusetts Democrat, said he was drafting legislation with Senate Banking Committee Chairman Christopher Dodd that would release the remaining US$350 billion in exchange for foreclosure help, aid for General Motors and Chrysler and provisions to hold banks accountable for increased lending to consumers.

The measure would adopt a Federal Deposit Insurance Corp foreclosure plan, revamp the Hope for Homeowners loan-relief program that has attracted few lenders and support a Treasury program to cut rates on some fixed-rate home-loans.

"We should have an agreement among Obama, Paulson and the congressional leadership to release the US$350 billion with conditions on how it's spent," Frank said. "We need the second US$350 billion, but it can only be done if there's an agreement as to how to do it."

On Saturday, Paulson urged Congress to release the second half of the rescue funds after the government exhausted US$350 billion in less than three months.

Loan modifications

"Congress will need to release the remainder of the TARP to support financial market stability," Paulson said. "I will discuss that process with the congressional leadership and the President-elect's transition team in the near future."

Frank said the legislation will include FDIC Chairwoman Sheila Bair's foreclosure-prevention plan, which provides a guarantee for troubled mortgages to spur loan modifications.

Paulson has declined to adopt the proposal, while Bair has said the law enacted in October gives the Treasury authority to fund a plan she said might prevent 1.5 million foreclosures through next year at a cost of US$24 billion.

Frank also plans to revise Hope for Homeowners, passed by Congress in July. The program, run by the Federal Housing Administration, is aimed at helping about 400,000 homeowners by insuring as much as US$300 billion in refinanced loans after servicers forgive part of the loan balance. Few lenders have signed up because banks must cut a large portion of the loan and pay high fees.

Frank said he wants to include a proposal Paulson is considering that would use Fannie Mae and Freddie Mac, the federally chartered mortgage financers the US seized in September, to reduce 30-year, fixed home-loan rates to about 4.5 percent from an average of about 5.54 percent.

Frank said he's ready to act on the legislation during the final month of the Bush administration, without waiting until Obama's January 20 inauguration.

"Why wait three weeks? Let's do it," Frank said. "We're in a crisis now. How many people's homes will be foreclosed?"