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Bush administration against retooling home program
2008-04-16
The Bush administration opposes a sweeping plan to refinance troubled home loans because a more modest one will achieve similar results without too much risk to taxpayers, a senior housing policy-maker told lawmakers on Wednesday. At issue is the expansion of the Federal Housing Administration -- the government's largest program for supporting homebuyers, which policy-makers agree could be useful in preventing foreclosures. While Democrats envision retooling the FHA with a multi-billion dollar cash infusion and new oversight, the Bush administration would prefer a more modest expansion. "Creation of a new fund and board... is redundant and unnecessary because the existing framework could achieve the same goal," Brian Montgomery, the FHA chief told the Senate Banking Committee. The Federal Housing Administration operates within the Department of Housing and Urban Development, which is a cabinet-level agency. A wave of failing home loans has grown over the past 12 months, costing banks some $200 billion in write-downs while pushing the economy toward a recession. The government has taken steps to buttress the financial system in recent months but has not done enough to aid troubled borrowers, Democratic lawmakers charged. "Clumsy is what I am getting from the administration," said Sen. Christopher Dodd, the committee chairman. "If they continue to do nothing we will end up with an economic mess on our hands that will take a generation to resolve." Dodd and other Democrats renewed their criticism of a $29 billion commitment from the Federal Reserve Board that encouraged JPMorgan Chase to buy its Wall Street rival Bear Stearns, which was near collapse in March. That swift action contrasts with government efforts to help homeowners, the Connecticut lawmaker said. "If we don't take effective action today, we risk being forced to take more dramatic and costlier action to respond to more dire consequences down the road," Dodd said. "That is what happened with Bear Stearns." Despite the hot rhetoric, both the Democrat and Republican plans to reinvigorate FHA would see Washington underwrite troubled loans after lenders waved their right to a large share of the home's worth. Many investors and mortgage service companies eager to shed failing loans might elect to take a relatively small loss through the FHA plan rather than risk a larger hit in foreclosure. Montgomery and lawmakers have sparred over the underwriting standards of a new FHA program and how it should be funded. On Wednesday, the FHA chief also criticized the Democrat plan for demanding that homeowners pay the government a fee if the property increased in value after refinancing. "This is not our money," he said. (Reporting by Patrick Rucker, Editing by Andrea Ricci)
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