- The Washington Times - Tuesday, April 15, 2008

WASHINGTON (AP) — Democrats in Congress and President Bush will agree on a bill to help half a million or more strapped homeowners get into lower cost mortgages, but it won’t be through the bankruptcy courts, the chairman of the House Financial Services Committee said today.

Efforts to let bankruptcy judges rewrite mortgages for strapped borrowers won’t make it through Congress this year, Rep. Barney Frank, D-Mass., told the Associated Press in an interview.

But if the mortgage industry refuses to participate in his plan to let struggling borrowers refinance into government-backed loans, Frank said, they can expect tougher regulation in the future.

“If they’re an obstacle to this, there’s going to be a serious effort legislatively to reduce their role,” said Frank, who plans to meet with mortgage servicers tomorrow.

Servicers will have to take losses on distressed loans “whether they like it or not,” he said.

The darkening economic picture and the political calendar are giving lawmakers and the White House a powerful incentive to come together on a housing package.

“People are very afraid of being accused of not having done something to avoid (a) longer and deeper recession,” Frank said.

His package, scheduled for a committee vote next week, would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners. Servicers would have to agree to take a loss on the existing loans, while borrowers would have to show they could afford to make new payments on their refinanced mortgages.

The final bill could include long-awaited revamps of the FHA, the Depression-era mortgage insurer, and Fannie Mae and Freddie Mac, the government-sponsored loan financiers and guarantors.

“This is an unusual situation in which a big package that has a lot of things that some people like will get them to support it, even if there are one or two things that they don’t like,” Frank said.

A broader effort to impose stricter financial regulation on investment banks and other institutions will wait until next year, Frank said.

Liberal groups and consumer advocates argue the bankruptcy change — supported by both Democratic presidential candidates, Hillary Rodham Clinton and Barack Obama — is needed to help hundreds of thousands of homeowners avoid foreclosure. Critics argue it would hurt borrowers in the long term by prompting lenders to raise interest rates.

The Senate rejected the measure before passing a housing bill last week, and Frank said it had little chance of being resurrected in the House.

“If we do do it, I think it’s not going anywhere,” Frank said.

The turmoil in the housing sector proves that the market doesn’t always function better without government intervention, the 14-term Democrat said.

“The smart people really screwed this one up,” said Frank, who faulted Alan Greenspan, the former Federal Reserve chairman, with a “grave mistake,” in refusing to impose tougher regulations.

On monetary policy, Greenspan was “very good, but on regulation he was awful,” Frank said.

In contrast, he praised current Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson for their handling of recent economic challenges, and credited them with persuading Bush to support a stronger short-term stimulus package than he initially wanted to.

Of Paulson, Frank said, “He’s part of an administration that I think is more ideologically conservative than he is in some areas, and he’s working this, trying to move the administration.”

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