The two relevant congressional committee chairmen in charge of housing policy, Senator Christopher Dodd (D-CT) and Representative Barney Frank (D-MA), today introduced thoughtful legislation to cope with the spiraling U.S. housing crisis—bills that include steps to encourage lenders and loan servicers to refinance mortgages of borrowers facing foreclosure.
The legislation, which in key ways mirror proposals put forth by the Center for American Progress to save America’s family equity and to stabilize American neighborhoods, begins the legislative debate on how to keep the impending housing-driven recession from spiraling into something even worse. These lawmakers understand that the still rapidly deflating housing bubble is not an academic exercise, but rather the single most powerful drag on the economic futures of American families. Both legislators are ready to begin the hard work of economy recovery.
Senate Banking Committee chairman Dodd’s Hope for Homeowners Act and House Banking Committee chairman Frank’s Housing Stabilization and Homeownership Retention Act both turn to the Federal Housing Administration to handle the refinancing of mortgages that are demonstrably underwater as well as those in which the borrowers clearly are unable to service their mortgages. Both bills boast measures to ensure that neither lenders nor borrowers are needlessly bailed out or set up for windfall profits in the future.
Both bills also provide for issuing long-term affordable mortgages that will go a long way toward restoring confidence in U.S. housing assets and much needed transparency to the value of mortgages in the primary and secondary markets. Chairman Frank’s plan also offers measures to help communities already devastated by foreclosures rescue their neighborhoods and rebuild home values.
Of course, this is just the beginning of the legislative debate over how best to resolve the U.S. housing crisis and related global credit crisis. Chairman Frank’s bill also requires the Treasury Department, the Department of Housing and Urban Development, and the Federal Reserve to propose a structure for auctions of home mortgages to allow for bulk refinance, which CAP has argued could help significantly move mortgages into hands of new lenders with fewer constraints on their ability to restructure the loans. Chairman Dodd’s proposal also speaks for a role for Fannie Mae and Freddie Mac. Although the two government-sponsored mortgage finance companies face significant challenges, CAP has argued this crisis requires that we enlist their capacity along with FHA’s in market stabilization.
Both of these issues will require additional discussion in the days ahead, but Sen. Dodd and Rep. Frank deserve credit for moving this legislation forward. Let us hope that Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke, and Republicans in Congress will engage quickly and constructively around these proposals. We have no time to lose.
Andrew Jakabovics is Associate Director of the Economic Mobility Program at the Center for American Progress.
For more information about the Center for American Progress’ policies on the housing crisis see the Housing page of our website or for specific information on our legislative proposals go directly to the following reports:
- Strengthening Our Economy: Foreclosure Prevention and Neighborhood Preservation
- Throwing Homeowners a Lifeline: A Proposal for Direct Lending to Qualified Troubled Borrowers
- Addressing Foreclosures: A Great American Dream Neighborhood Stabilization Plan
- Strenghtening Our Economy: Foreclosure Prevention and Preservation, Testimony of Michael S. Barr Before the United States Senate Committee on Banking, Housing, and Urban Affairs