Editorial: Bush, Congress must act to quell foreclosure crisis
Home foreclosures are surging. Housing prices are sinking. And the broader economy is sputtering.
That should galvanize Congress and the president to deal aggressively with the mortgage crisis that’s hobbling the economy. But Democrats and President Bush are at odds over what to do.
Last week, the House passed responsible legislation to stave off foreclosure for hundreds of thousands of American homeowners. But Bush dismissed the bill as a bailout and threatened a veto. The president and Republicans should reach a compromise in the Senate – or bear the blame for further deterioration of the housing market.
Foreclosure proceedings were started on more than 1.5 million homes last year, up more than 50 percent from 2006. They’re likely to surpass 2 million this year.
Massive foreclosures don’t help anyone: Neighborhoods become blighted, the local tax base is eroded, consumer spending suffers, lenders lose money and home values fall.
The House legislation, authored by Rep. Barney Frank, D-Mass., lets the Federal Housing Administration guarantee up to $300 billion in new loans to help at-risk homeowners refinance into more affordable mortgages. In exchange for avoiding foreclosure, lenders must reduce the loan’s value to 85 percent. And homeowners get a loan limited to 90 percent of the home’s new market value.
The plan would help a wide swath of homeowners, but stops short of rewarding irresponsible borrowing. Only owner-occupied principal residences would qualify, cutting out investors and speculators. Borrowers would share at least half the profits with the government if they later refinance or sell their home.
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