Big housing measure OK'd, but some say it's not enough

WASHINGTON — Even as a huge bipartisan majority in the Senate voted in a rare Saturday session to send a housing bill to the White House, economists, consumer advocates and other analysts said the package is unlikely to relieve the foreclosure crisis driving the nation toward recession.

"This is not the end of the housing crunch," said Jared Bernstein, a senior economist at the Economic Policy Institute. "Housing prices have already fallen 15 percent and they need to fall 10 percent more. This bill isn't going to change that equation."

The Senate voted 72-13 to approve the bill, which seeks to halt the steepest slide in house prices in a generation, rescue hundreds of thousands of families from foreclosure and restore confidence in the nation's largest mortgage-finance firms.

On its way to Bush

White House officials said President Bush is likely to sign it by midweek, despite his opposition to nearly $4 billion in aid to local communities.

During Senate debate, Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee and one of the bill's lead sponsors, cited a litany of grim statistics about the mortgage crisis, including that an estimated 8,500 families a day are falling into foreclosure and that one in every eight homes is projected to enter foreclosure over the next five years.

"The American dream has become a nightmare for countless families," Dodd said, urging his colleagues to vote for a bill that he acknowledged is "not perfect."

Both presidential candidates, Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., expressed support for the legislation, though neither took a break from the campaign trail to vote Saturday.

Washington Sen. Maria Cantwell, a Democrat, voted for the legislation, while the state's other senator, Patty Murray, also a Democrat, did not vote.

Republican lawmakers blasted some of the measure's key provisions as bailouts for irresponsible borrowers and risk-addicted financial institutions that could wind up costing taxpayers hundreds of billions of dollars.

House vote

Last week, the House approved the bill 272 to 152, with three-quarters of GOP lawmakers voting no.

The bill grants the Treasury Department broad authority to safeguard the nation's two mortgage-finance giants, Fannie Mae and Freddie Mac, potentially by spending billions of dollars in federal money to prevent the collapse of the companies, which own or guarantee nearly half of the nation's $12 trillion in mortgages.

Debt ceiling

To accommodate the rescue plan for the mortgage companies, the bill raises the national debt ceiling to $10.6 trillion, an increase of $800 billion.

The new legislation grants the Federal Housing Administration (FHA) authority to insure up to $300 billion in refinanced mortgages to help stem foreclosures.

Analysts, including the Congressional Budget Office, expect less than $100 billion of that authority to be used. The risk to taxpayers is minimal, analysts said, given higher insurance fees that will be charged to recipients of the refinanced loans.

The Treasury secretary, Henry Paulson, an architect of the plan, said he expected never to use the new authority. And the Congressional Budget Office predicted any bailout between now and Dec. 31, 2009, when the authority sunsets, would most likely cost $25 billion, and there was a better-than-even chance of no cost. at all.

But the only real limit on the Treasury's authority is the new $10.6 trillion debt ceiling.

The package also contains provisions long-sought by the Bush administration, including a strong new regulator for Fannie and Freddie and an overhaul of the FHA, the nation's largest provider of mortgage insurance.

After the vote, Sen. Jim DeMint, R-S.C., said the authority given the Treasury "crosses the line into socialism."

The centerpiece of the legislation is a plan to prevent up to 400,000 foreclosures by authorizing the FHA to help families that, due to falling home prices, owe the banks more than their homes are worth.

If lenders agree to forgive a portion of the debt and write new loans worth no more than 90 percent of the home's current, lower value, the FHA will insure the new loans and agree to pay off the lenders when borrowers default.

Homeowners also would get an equity stake in their properties, which they would have to share with the government if they sell or refinance.

Assured on program

At a hearing Friday before the House Financial Services Committee, representatives of the mortgage industry promised Chairman Barney Frank, D-Mass., one of the bill's chief authors, that they would take advantage of the new program.

"Clearly in areas where home prices have dropped, it's going to be utilized more," said Steve O'Connor, senior vice president of government affairs for the Mortgage Bankers Association.

But consumer advocates have their doubts. More than a year after the mortgage crisis began, banks are foreclosing on far more loans than they modify. In May, as a coalition of lenders known as the Hope Now Alliance modified 70,000 loans, RealtyTrac reported 261,000 foreclosure filings.

"How effective can the FHA refinancing program be in light of how slow and ineffective mortgages' servicers have been so far?" said Alys Cohen, a staff attorney at the National Consumer Law Center.

Even if the program works, its goals are modest compared to the scope of the problem, said Mark Zandi, chief economist for Moody's Economy.com. He estimates 5.5 million loans will default by the end of 2009, with about half of those families losing their homes.

"If we're lucky enough to help 400,000 households," said economist Bernstein, "I'm afraid it's a drop in the bucket."

Material from The Associated Press

is included in this report.