Senate to vote on Foreclosure Prevention Act

The Baltimore Sun

WASHINGTON -- The Senate plans a vote today on whether to move forward with legislation aimed at helping roughly 600,000 struggling homeowners avoid foreclosure.

Although several housing-related bills are moving through Congress, the Foreclosure Prevention Act "is the most important piece of legislation out there," said Josh Nassar, a lobbyist for the Center for Responsible Lending, a homeowner advocacy group.

Lenders fiercely oppose the Democratic-backed bill because it would let judges reduce mortgage payments for homeowners in Chapter 13 bankruptcy proceedings. If lawmakers allow some people to escape the original terms of their home loans, they would "increase the cost of mortgage credit for all borrowers," Mortgage Bankers Association Chairman Kieran Quinn said in a statement.

But the bill also has big supporters, including AARP, the AFL-CIO labor confederation, the U.S. Conference of Mayors and consumer groups. The National Association of Home Builders backs provisions in the bill that would lower their tax burden.

Lobbying is intense, and the outcome unclear. "It's a wide-open process right now," Nassar said of the efforts to compromise.

Senate Majority Leader Harry Reid of Nevada is pushing for a procedural vote today that would let the debate on the measure proceed. He needs 60 votes, meaning he must win over at least nine of the Senate's 49 Republicans.

The lending industry is trying hard to make sure Reid fails unless he drops or dramatically revises the provision allowing bankruptcy judges to change the terms of primary-residence mortgages.

The bankers' group says mortgage rates would increase by at least 1.5 percentage points for all borrowers if lenders had to absorb the cost of "cramdowns," their word for the forced rewriting of mortgage terms.

But bill supporters say Congress must fix mortgage problems that date to the period between 2002 and 2006, when home prices were rising sharply. Back then, many borrowers with irregular incomes or spotty credit histories were steered into so-called subprime loans.

Such loans typically had low "teaser" interest rates that over time, ratchet up rapidly. As more homeowners have become unable to pay their mortgages, foreclosures have been spiking, throwing more houses onto the market and hurting real-estate values.

An estimated 1.8 million subprime borrowers are now facing the possibility of foreclosure, and it's believed that about 600,000 of them could end up in bankruptcy and might benefit from the bill.

The Bush administration opposes Democrats' effort to give bankruptcy judges the power to not only lower interest rates, but even reduce the outstanding principal. The White House has been urging banks to voluntarily modify subprime terms for people who can't pay their mortgages. The House Judiciary Committee has voted in favor of a bill that would allow mortgage modifications but did so with just one Republican vote: Steve Chabot of Ohio.

While lenders are trying to head off Reid's legislation, the home builders' trade group supports the tax breaks it contains. The bill would allow business owners to use net operating losses in 2006 and 2007 to offset profits from five prior years and receive applicable tax refunds. Under current law, the loss "carryback" limit is two years. Another provision would provide an extra $10 billion of tax-exempt bond authority, which could be used to provide mortgages for first-time home buyers or to refinance subprime loans.

Yet another provision would increase funding for Community Development Block Grants by $4 billion to purchase and rehabilitate foreclosed properties in neighborhoods hit hard by foreclosures.

The Foreclosure Prevention Act is not the only bill that may see action this year.

The House has passed four housing-related bills that await Senate action, and key lawmakers are considering a bailout plan in which a government-backed entity would buy up delinquent mortgages at a deep discount and forgive any debt above the homes' current market value. It would then use federal loan guarantees to help borrowers refinance at lower rates. Some lawmakers also are considering a plan to provide tax credits for people who buy homes.

Bruce Marks, founder of the Neighborhood Assistance Corporation of America, a homeowners advocacy group, thinks that at the least, Congress will pass Reid's bill because the mortgage crisis is deepening. "What you are seeing behind the scenes is panic" among lawmakers who fear a painful recession, he said.

Those lawmakers are right to worry about foreclosures, because with many subprime loans hitting their "triggers" for higher interest rates this year, "it's going to get much, much worse," he said.

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