Gov. Martin O'Malley appeared on Capitol Hill yesterday to urge passage of legislation that would direct federal dollars to augment state efforts to deal with a growing foreclosure crisis.
Congress and the Bush administration have put forward a number of competing plans to help more homeowners head off foreclosure. The Senate passed a package yesterday that includes tax breaks for homebuilders, tax credits for people who buy foreclosed properties and other steps designed to help homeowners weather the housing crisis.
O'Malley testified before the House Financial Services Committee in support of a Democratic plan being debated in that chamber that would expand the availability of loans insured by the federal government, help borrowers refinance mortgages, and provide loans and grants to enable local governments to buy foreclosed property.
"We really do need federal help," O'Malley said after the hearing. "We needed these dollars months ago."
The Democratic governor, who testified alongside Washington Mayor Adrian M. Fenty and mayors from Las Vegas and Boston, pushed through legislation in the Maryland General Assembly this year aimed at preventing mortgage-related problems. Many of those new laws are "prospective," and more needs to be done to help borrowers who are already in trouble, O'Malley said.
His administration has worked to extend financial assistance to homeowners, but some efforts have fallen short of expectations. One program provides short-term, zero-interest loans of up to $15,000 for homeowners to catch up on their mortgage payments, though the state has made only a handful of such loans.
Rep. Shelley Moore Capito, a West Virginia Republican on the House committee, asked O'Malley about the so-called Bridge to Hope program.
"On the one hand, it sounds great, but on the other hand, I'm thinking if you're already having trouble meeting your obligations and you're taking on another loan, is that a challenge?" Capito asked.
"We have not had as many people taking advantage of it as we would hope," said O'Malley.
The exchange hinted at a broader debate in Congress over how to tailor the federal government's response to foreclosures.
Some lawmakers contend that a bailout for homeowners would give rise to "moral hazard," meaning that insulating those who bought homes they couldn't afford would not discourage such behavior in the future. Others say that some homeowners were victims of predatory lending and should be protected, and they point out that the government recently stepped in to bail out Bear Stearns Cos., an investment bank.
O'Malley is firmly in the camp of policymakers who believe the government should play a role in fixing the foreclosure debacle.
"Our ultimate success depends on a partnership with the federal government," he said during the hearing. "Our Achilles' heel is this: We lack right now the resources that could be targeted in reasonable and timely ways to mitigate the damage."
The legislation approved by Maryland's General Assembly slows down the foreclosure process, establishes criminal penalties for anyone who commits mortgage fraud and requires that lenders verify a borrower's ability to pay. The O'Malley administration also has rolled out refinance programs.
The national rescue package being drafted by Rep. Barney Frank, a Massachusetts Democrat who is chairman of the Financial Services Committee, would have the Federal Housing Administration back $300 billion in refinanced loans for 1 million or more homeowners. It also would provide $15 billion in loans and grants to states, which would allocate the money for the purchase and rehabilitation of vacant, foreclosed homes.
Frank said states and cities need to combat blight.
"The people who suffer when there's a foreclosure are not simply those who go into foreclosure, though they suffer the greatest, but people down the block, people across the street suffer as well," he said.