WASHINGTON – The mortgage bailout bill rapidly was becoming a catch-all rescue for every segment of the mortgage markets yesterday, as a multitude of interest groups were flooding Capitol Hill with their requests.
Despite protests from some lawmakers, the proposal to buy up to $700 billion worth of lenders’ mortgages and mortgage securities was being expanded to include refinancings for distressed mortgages, municipal entities with distressed debt, insurance companies and more assistance for the banks. And other groups, such as auto finance companies and credit card lenders, also were angling to get included in the package.
One proposal would allow the government, which now owns Fannie Mae and Freddie Mac, to restructure any distressed mortgages owned by those two companies – a majority of single-family mortgages in the country.
Some lawmakers were trying to get a provision – rejected earlier this year – to allow homeowners to take their mortgages into bankruptcy court to have them restructured. Credit unions are opposed to this.
The banks were lobbying to get preferred stock they hold in Fannie or Freddie guaranteed by the government, which has agreed to guarantee Fannie and Freddie debt they hold. The American Bankers Association said as many as 2,000 banks hold significant amounts of Fannie or Freddie preferred, which would be rendered worthless under the current conservatorship of the two.
Treasury Secretary Henry Paulson made it clear he sees credit unions as a key component of the mortgage bailout. During yesterday’s hearing before the Senate Banking Committee, Paulson said an important aspect of the plan is to have a wide array of financial institutions take part, including thrifts, community banks and credit unions. He said a broad array of participants will help establish an accurate price for the securities being traded under the plan.
NAFCU President Fred Becker said his group is continuing to work to ensure credit unions are treated equally to banks. “We’re continuing to wrestle with all the issues,” Becker told The Credit Union Journal.
Brad Miller, Washington lobbyist for the Association of Corporate CUs, said the corporates were supportive of the proposed program because they believe it will shore up the markets, and thus the values, of their huge mortgage backed securities portfolios, even if the corporates don’t sell their assets under the program. But, he emphasized the rapidly changing nature of the bill and that there has been no formal endorsement of it by the corporate network. “This whole situation is so fluid,” said Miller, “and there’s so many changes to this; it’s changing by the hour.”
Otherwise, lawmakers yesterday were grappling with what is known on Capitol Hill as a “Christmas Tree” bill, one adorned with all kinds of decorations.
Republican Senator Richard Shelby of Alabama criticized the bailout during yesterday’s hearing by the banking committee. “This bailout continues its ad hoc approach but on a much larger scale,” he said of the attempts by the Treasury and Federal Reserve to curb the financial crisis.
Republican Senator Elizabeth Dole of North Carolina called the bailout “incredibly expensive” and “rapidly concocted.”
Her Republican colleague Robert Corker, a Tennessee Republican, agreed: “This has been done on the fly.”
