The WSJ reports that the White House’s free market bias is meeting opposition.
Barney Frank (D., Mass.) is the chairman of the House Financial Services Committee. He wants to refinance as many as one million “distressed” homeowners. He wants Uncle Sam to help them out of high-cost loans using government assistance.
How much would this cost? Up to $15 billion over five years.
Uncle Sam would help borrowers take on loans back by the Federal Housing Administration.
Certain loans, such as investment properties and those on vacation homes, wouldn’t qualify.
In order to sell a loan to the government under the plan, the lender would likely be required to discount the loan to a level the borrower could repay.
“You can’t put an end to the economic problems without reducing foreclosures,” Mr. Frank said.
Bankers, consumer groups, think tanks and government agencies have floated numerous proposals over the past several months to try to prevent the housing market from worsening. Weaker home prices, the rising cost of adjustable-rate mortgages and soured investments have pushed up foreclosure numbers. Regulators and bankers are also now expecting a jump in the number of defaults on interest-only loans.
The Bush administration has warned against a bigger government presence in stabilizing the economy, but continued bad economic news has prompted Democrats to advance more aggressive proposals. Mr. Frank began circulating details of his new plan this week to other lawmakers.
The program might be less costly if the housing market improves or if the borrowers with government-backed loans are able to handle their new mortgages. Mr. Frank is also working on a provision that could limit the government’s potential exposure, but in an interview he defended a federal role in stabilizing the housing market. “It was the lack of government intervention that got us here,” he said.
Mr. Frank is working on another plan to allocate up to $20 billion in grants and loans that would allow states and municipalities to buy foreclosed or abandoned homes “at or below market value.” Some of the money could be paid back to the federal government once the homes are resold.
These plans would require legislation and could run into resistance from many Republicans who have alleged Democrats are too willing to extend the federal government’s exposure to the economic turmoil.
“It’s yet another experiment with the federal government nationalizing the private sector,” said Rep. Patrick McHenry (R., N.C.), a member of Mr. Frank’s committee.