Congressional Democrats roll out plan to stem foreclosures

Congressional Democratic leaders from both the House and Senate ramped up the rhetoric and called on President Bush to take action to help troubled borrowers impacted by the recent rise in home foreclosures, even as they introduced a foreclosure-prevention plan.

Senate Majority Leader Harry

Reid (D-Nevada), Speaker of the House Nancy Pelosi (D-California), Representatives Barney Frank (D-Massachusetts) and Carolyn Maloney (D-New York), and Senators Christopher Dodd (D-Connecticut) and Charles Schumer (D-New York) held a Capitol Hill press conference Oct. 3 outlining their proposed steps to help consumers who are having difficulty making their monthly mortgage payments.

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"We are facing a serious meltdown in the subprime mortgage market," said Dodd, chairman of the Senate Banking Committee and a declared presidential candidate. "This crisis is the equivalent of a slow-motion, 50-state [Hurricane] Katrina, taking people's homes one by one, devastating their lives and destroying their communities."

The Democratic leadership called on the Bush administration to appoint a special adviser to oversee the federal government's response to growing delinquencies and foreclosures. Furthermore, their proposal calls for temporarily lifting the portfolio caps on Fannie Mae and Freddie Mac, and increasing funding for foreclosure-prevention efforts.

"We hope the president will join us and take immediate action that will help prevent additional foreclosures and allow for more American families to keep their homes," said Pelosi.

Outgoing Mortgage Bankers Association (MBA) Chairman John M. Robbins, CMB, described efforts to help homeowners stay in their homes-something he said is of "paramount importance" to MBA.

"We have been vigorously advocating for an increase in the portfolio caps on Fannie and Freddie as a way to increase liquidity in the market and provide more opportunities for troubled borrowers to refinance into mortgages they can better afford," said Robbins.

"Legislation to modernize FHA [the Federal Housing Administration] and reform GSE [government-sponsored enterprise] oversight would also provide increased opportunities to help troubled borrowers, and we look forward to continuing to work with the Senate to get these legislative initiatives passed and onto the president's desk," Robbins added. "The same goes for the tax legislation to address the treatment of forgiven debt and to extend the deductibility of mortgage insurance premiums."

Frank, who is chairman of the House Financial Services Committee, said that "sensible regulation" is the best way to restore investor confidence and help people caught in existing mortgages. He has since announced his intention to introduce legislation to temporarily increase caps on the portfolios of Fannie Mae and Freddie Mac, with Schumer poised to introduce a companion bill in the Senate.

"I will introduce a very limited bill that mandates that the portfolio caps imposed by the regulator on Fannie Mae and Freddie Mac be temporarily increased-for six months-with 85 percent of the increase required to be used for purchasing refinanced subprime mortgages," explained Frank. "The six-month/85 percent bill that I am filing seems to me responsive to the immediate needs to help people avoid the foreclosures that will result if prepayment penalties keep them locked in to adjustable-rate mortgages [ARMs] that will rise steeply, without dealing with the broader questions of the role of Fannie and Freddie, which must be addressed in a comprehensive bill."