Key Democrats Want Government To Stabilize Housing Crisis

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.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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