Leading Democrats in the Senate said Monday they would try to force a vote this week on legislation designed to help troubled mortgage-holders stay in their homes.
Democrats will try to win Senate consideration for their Foreclosure Prevention Act, which aims to help families avoid foreclosure and aid the recovery of communities already harmed by the crisis. Republicans blocked an earlier attempt to debate the bill last month.
"This is a pivotal week," said Sen. Christopher Dodd, D-Conn, the chairman of the Senate Banking Committee. "Failure to act is not an option. The problem is growing more serious by the hour and any delay is putting more homeowners in jeopardy."
Republicans agree that the legislation is in play.
"It’s going to be an important week on the committee," said Steve Wymer, an aide to Sen. Wayne Allard, R-Colo., a member of the banking panel. "Senator Allard has always worked well with the Chair."
Sen. Harry Reid, D-Nev., the Senate majority leader, said that the White House has been unresponsive. The administration has advocated for voluntary foreclosure rescue actions by lenders, rather than backing a comprehensive government-led assault.
"The Republicans in the Senate have stopped us from going forward with legislation, [but that] hands-off approach doesn’t work," Reid said.
Reid also contrasted the administration’s position with its quick action in helping out the struggling investment bank, Bear Stearns. "The federal government has provided assistance to Wall Street," he said. "Now, Congress must turn its attention to Main Street."
The mortgage crisis has extended well beyond the subprime loans that triggered it, according to Dodd.
He cited Bank of America in saying the situation will worsen later this year as rates reset for $362 billion in subprime, adjustable rate mortgages. For many borrowers, the rates will adjust to unaffordable levels.
Dodd said that will lift already record foreclosure rates and further harm an economy which he believes is already in recession.
"Remember, this economic crisis has as its center a housing crisis," he said. "And the center of the housing crisis is the foreclosure crisis."
One factor that may get in the way of any agreement with Senate Republicans is if Dodd insists on bankruptcy reforms that would allow judges to reduce mortgage balances to match drops in actual home values.
Alex Pollock, from the libertarian American Enterprise Institute, pointed out that the bankruptcy proposal could be a deal killer on Capitol Hill because it involves the government changing contracts through the courts.
"It will make it much more difficult, and rightfully so, to pass," Pollock said.
Both senators dismissed Treasury Secretary Henry Paulson’s initiative, also announced Monday, to overhaul bank regulation in order to avoid future mortgage debacles paydayloan. They said the reforms are welcome but will do nothing to address current problems.
"To talk about overhauling the regulatory system is a wonderful idea," said Dodd. "But, frankly, it doesn’t relate to the issues that we’re grappling with here, and the problems we’ve got to confront."
Dodd disputed the idea that earlier reform would have enabled the nation to avoid the foreclosure crisis. "That has nothing to do with it," he said.
The regulatory bodies have had the authority to regulate lending standards for years, according to Dodd.
"The failure is leadership, the failure of the administration to utilize the tools they’ve been given over the years to deal with the very practices that caused this problem.," he said. "That’s the problem here, not reorganization of the regulatory system."
According to Wymer, however, regulation simply fell behind the vast and swift-moving changes in the financial markets.
Innovations in packaging, repackaging and marketing mortgage backed securities have left regulators to play catch up, the GOP aide said.
Speaking along with the senators was Jared Bernstein, an economist for the Economic Policy Institute, a liberal Washington think tank, who said any solution to the crisis should contain a three-pronged approach.
Help should not go to speculators; it should be funneled only to deserving homeowners, according to Bernstein. And he said aid should be given in ways that help markets quickly find their bottoms by encouraging mortgage servicers to lower mortgage balances to actual market values.
Solutions should also be structured conservatively so that good money will not be thrown after bad, in an effort to get into and out of the correction rapidly, Bernstein added.
"The big problem we’re facing now is that the housing market has a unique characteristic," said Bernstein. "It takes a long time for price corrections to occur there, and the market can’t clear until this correction is complete."
Plans like Dodd’s, which calls for dropping mortgage balances down to what the homes are worth, facilitate the needed correction, according to Bernstein.
"In essence, the plan gives lenders the chance to take a quick hit versus the slow bleed that could end in foreclosure," he said.
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