Senate Republicans yesterday blocked a Democratic bid to expand protections for homeowners facing foreclosure, saying the move would lead to higher interest rates during an economic slowdown and encourage excessive litigation.
Republican leaders, who complained that the measure was drafted without their input, used a procedural move to kill a Democratic measure that would allow bankruptcy judges to erase debt or make changes to a mortgage contract in the borrower’s favor, such as lowering the interest rate.
“Everything we do, there is an obstacle by Republicans refusing to let us legislate,” said Senate Majority Leader Harry Reid, Nevada Democrat. “They are bound and determined to stop us from legislating.”
A vote to proceed to a full debate on the Foreclosure Prevention Act failed on a 48-46 vote, essentially killing the measure for now.
Republican leaders said the bill was drafted without the help of the Senate Banking, Housing and Urban Affairs Committee and that Mr. Reid refused to allow amendments.
“This is what happens when you have a hastily concocted political exercise,” said Senate Minority Leader Mitch McConnell, Kentucky Republican.
Republicans said the proposal would encourage troubled homeowners to seek a quick fix for their loans in court.
“We need a bigger, bolder and broader economic growth plan to help struggling homeowners and communities,” said Sen. Lamar Alexander, Tennessee Republican.
Senate Republicans yesterday announced a broad alternative measure that included $10 billion to help homeowners refinance subprime mortgages, $180 million for foreclosure counseling programs and a $15,000 tax credit for the purchase of foreclosed homes.
The Republican package also called for extending President Bush’s 2001 and 2003 tax cuts. Mr. Reid accused them of playing politics with a bill that would help more than 200,000 homeowners avoid foreclosure.
“People on Wall Street are high-fiving themselves” today, Mr. Reid said. “The mortgage bankers just won again. There a few losers out there, like millions of consumers.”
A slump in the housing market has led to a foreclosure epidemic that promises to worsen in the next two years, when more than 2 million subprime mortgages reset at significantly higher rates.
Mr. Bush had threatened to veto the bill, saying it would cause lenders to tighten credit and raise interest rates.
The Senate bill “would do more to bail out lenders and speculators than to help American families keep their homes,” Mr. Bush said yesterday. “The Senate bill would actually prolong the time it takes for the housing market to adjust and recover.”
Treasury Secretary Henry M. Paulson Jr. said yesterday that while the housing problem remains the biggest risk to the economy, the issue needs to be put into perspective. He noted that 93 percent of all mortgages are being paid on time and that less than 2 percent are in foreclosure.
“So while some in Washington are proposing big interventions, most of the proposals I’ve seen would do more harm than good,” Mr. Paulson said in remarks prepared for delivery last night before the Economic Club of Chicago.
• This article is based in part on wire service reports.