WASHINGTON — In the two weeks since the Bush administration unveiled its program to help subprime borrowers, alternative policy solutions have proliferated.
That, perhaps, is not surprising. But the reputations of those doing the proliferating and the radical nature of their ideas indicates to some that a tipping point toward action may be near.
Cash bailouts to homeowners, broad reforms of mortgage laws, changes to bankruptcy and tax codes, and a hike in the conforming loan limit have all gained traction just in the past week alone.
"There is a realization that our problem is massive, not only within the United States but also globally — not only in the field of housing but also with the provision of credit generally — and we have to come up with a solution that is commensurate to the problem," said former Rep. John J. LaFalce, a New York Democrat.
"The momentum clearly is building," said Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York. "Ultimately, rhetoric turns into action."
Jim Leach, the former House Banking Committee chairman who now directs Harvard's Institute of Politics, agreed.
"The precept of doing nothing should be off the table," he said in an interview Wednesday. "This isn't an issue that one deals with in a laissez-faire way. The implications are too great for the American economy."
Mr. Leach said that if foreclosure estimates "actually do occur, the political reaction will be astonishing. We're not talking a loss in the stock market. We are talking about the loss of the family home..., and that has just huge implications."
Sen. Charles Schumer, the chairman of the Joint Economic Committee, and former Treasury Secretary Lawrence Summers were two more heavyweights to weigh in Wednesday, both warning that current efforts are insufficient, and each pushing policy alternatives to resolve the mortgage crisis.
When Treasury Secretary Henry Paulson unveiled a plan Dec. 5 to freeze the interest rates on certain subprime mortgages, banking lobbyists used it as an argument against bankruptcy reform. And many hoped the Federal Reserve Board's proposal on mortgage abuses, released Tuesday, would dampen enthusiasm for mortgage reform legislation.
But the Treasury plan is seen as too narrow, and the central bank's plan, despite being significantly broader than any previous Fed proposal, was seen as too little. This, combined with continuing turmoil in the credit markets and a slumping economy, have encouraged current and former policymakers to propose alternatives.
Speaking at a Brookings Institution forum on Wednesday, Sen. Schumer detailed seven initiatives he said would mitigate the foreclosure crisis.
The New York Democrat said he would offer legislation to let state and local governments allow struggling subprime borrowers to refinance into cheaper loans by using tax-exempt mortgage revenue bonds. The idea was first floated by the Treasury, but Sen. Schumer said its version does not go far enough.
"The administration has proposed we provide a temporary, three-year increase in the volume cap that limits the state issuance of MRBs," he said. "Treasury officials tell us they have $5 billion a year in mind. That doesn't go far enough."
His bill would increase the cap to $10 billion, make it permanent, and give states and localities "the flexibility to respond to a wider range of mounting housing needs," Sen. Schumer said.
Mr. Summers, meanwhile, said it is time for "aggressive fiscal and monetary policy" to "minimize the risk of a recession, or the severity of recession if it comes."
He called the Treasury loan modification plan a "constructive step" but said "a much broader strategy" is needed, including reform of the credit rating agencies. He also suggested that the government provide money to communities so they could convert foreclosed homes into rental properties.
Sen. Schumer and Mr. Summers follow former Federal Reserve Board chairman Alan Greenspan who on Sunday said he preferred direct cash grants to struggling homeowners over government tinkering with the mortgage market.
Mortgage reform passed the House on a bi-partisan basis Nov. 15 that would restrict underwriting practices and require lenders to prove a net tangible benefit on refinancings.
Senate Banking Committee Chairman Chris Dodd followed up last week, introducing an even tougher version. The Connecticut Democrat would crack down harder on investment banks that securitized subprime loans.