WASHINGTON — Even before President Bush formally unveiled his loan modification plan Thursday afternoon, the issue had become a political hot potato.
Democrats pushed the administration to go further, but several House Republicans said they feared it would lead to a government bailout despite the fact the plan does not use public funds.
Each side took the occasion to blame the other for delays on a host of related legislation, including Federal Housing Administration reform, government-sponsored enterprise reform, and appropriations for more debt counselors.
"I've called on Congress to pass legislation that strengthens independent regulation of the GSEs — and ensures they focus on their important housing mission," President Bush said at a press conference announcing the modification plan. "The Senate has not acted. And the United States Senate needs to pass this legislation soon."
Sen. Chris Dodd, the banking committee's chairman and a Democratic presidential candidate, said the modification plan was like "using a squirt gun to put out a fire" and took umbrage at the implication that he was responsible for any delays. He noted that two Republicans have placed holds on passage of FHA reform and said GSE reform could not pass because the Bush administration would not negotiate with either him or Sen. Richard Shelby, the banking panel's lead Republican.
"They are not negotiating with us," he said. "Dick Shelby feels as strongly as I do on this. The administration is not dealing with us here at all. We are in favor of a strong regulator. Those are minor things. That's not the housing problem."
The loan modification plan, meanwhile, drew criticism from several directions, largely because it potentially applies to only one-third of the 1.8 million subprime hybrid mortgages whose rates are to reset by 2010, according to administration estimates. The plan would give five-year modifications of subprime hybrid, adjustable-rate mortgages originated between Jan. 1, 2005, and July 31, 2007, that will reset in the next three years.
The plan was further narrowed to borrowers in that category with less than 3% equity in their homes and FICO scores below 660 which have not risen more than 10% since origination. Borrowers would also be limited to those whose payments would jump by more than 10% due to an interest rate reset. Mr. Bush said the plan ensures that modifications are not given to borrowers who do not deserve them.
"We should not bail out lenders, real estate speculators, or those who made the reckless decision to buy a home they knew they could never afford," he said. "Yet there are some responsible homeowners who could avoid foreclosure with some assistance."
Evidence of the problem's urgency came from the Mortgage Bankers Association Thursday. The association said delinquency rates are at their highest since 1986 and that the rate of foreclosure starts and share of loans in the foreclosure process are at their highest ever.
Some industry representatives defended the plan as a practical solution to impending foreclosures.
George Miller, the executive director of the American Securitization Forum, said the plan is easier to swallow than a proposal from Federal Deposit Insurance Corp. Chairman Sheila Bair to extend starter rates over the life of the loan for all current subprime hybrid mortgages.
"We think this is a better and more balanced approach that more carefully tailors the kind of relief to situations and borrowers that need it based on the criteria we've developed," he said.
Michael Heid, co-president of Wells Fargo Home Mortgage, acknowledged the Bush plan is "not a permanent solution," but said it would help many families.
"It also buys time for the housing market to stabilize so that refinancing options again become available to these consumers."
Consumer groups, however, said they would have preferred the Bair plan. The Bush plan is "much more limited," said Bruce Marks, the CEO of Neighborhood Assistance Corp. of America. They've "really narrowed this down. That's the negative. The positive is that you've set the standard for government intervention for [an] across-the-board solution for the mortgage industry."
