WASHINGTON — Republicans launched an-all-but-certain-to-lose fight Thursday to stop a foreclosure rescue bill during its first round of debate in the House Financial Services Committee.
The bill sponsored by Committee Chairman Barney Frank would give borrowers on the cusp of foreclosure a break on their mortgage debt at the expense of lenders and investors, but the government would guarantee the rest of the loan through the Federal Housing Administration.
Rep. Spencer Bachus, the panel's No. 1 Republican, who suffered criticism from his party's leadership after co-sponsoring a mortgage underwriting bill by Rep. Frank last fall, led his party's charge against the FHA refinancing proposal with a Republican substitute amendment.
The amendment, which mostly regroups reforms that have already cleared the House, failed 34 to 23.
In his opening statement, Rep. Bachus said he and other Republicans were opposing the rescue bill on grounds it is unfair and shifts risks to taxpayers.
"By rewarding those homeowners who made bad choices or engaged in financial irresponsibility, what signal do we send to those millions of Americans who chose a more responsible course and must now watch as their neighbors receive a taxpayer-subsidized windfall in the form of sizable writedowns in loan principal and reduced monthly mortgage payments," the Alabama lawmaker said.
Other Republicans followed that tack during the panel's debate, but they were outgunned by Democrats who outnumber them and overwhelmingly support the FHA rescue bill.
At the outset Rep. Frank said he is eager for the Congressional Budget Office to finish its analysis of the bill's budget impact but insisted he did not expect it to burden taxpayers.
"We … will pass a bill, I hope, that includes no taxpayer dollars to pay anybody's mortgage," he said. "When the small percentage of those default, the FHA takes the house. This is not a free ride for people."
Despite the partisan divide on the underlying FHA proposal, committee members from both sides of the aisle approved several minor changes in Rep. Frank's bill by voice vote.
An amendment by Rep. Frank stripped a section that suggested regulators could raise mortgage debt-to-income requirements as high as 55% and substituted language saying regulators could let the requirement fluctuate as they see fit.
An amendment by Rep. Paul Kanjorski, D-Pa., and Rep. Judy Biggert, R-Ill., added appraisal standards, meant to ensure the independence of appraisals for the refinancing program, that are similar to ones the House has previously approved in other legislation.
A controversial amendment by Rep. Mel Watt, D-N.C., that would marginally increase housing counselor funds and allow their use to be expanded to cover borrowers' legal fees, failed on a vote of 34 to 28. But in a procedural maneuver Rep. Frank authorized the provision to be reconsidered when the panel reconvenes Wednesday to continue its debate. Lender lobbyists said privately they fear the measure would effectively pay for lawsuits against them.
Many other efforts to change the bill are on track to come up next week.
Lenders support letting the FHA refinancing proposal become an option but prefer reducing writedowns. Rep. Frank refused to speculate to reporters later on whether he would budge on that point, saying he would not "negotiate" the bill in the press.
Instead he put a positive spin on the bill's overall outlook.
He noted that a letter from Housing and Urban Development Deputy Secretary Roy Bernardi to committee leaders Thursday restated the administration's opposition to the bill but did not threaten a veto. He also pointed out that Senate Banking Committee Chairman Chris Dodd plans a vote May 6 on the FHA refinancing plan and a long-stalled effort to reform the government-sponsored enterprises in the hope of adding them to a larger housing stimulus bill.
"I was surprised. I thought I was hearing veto," Rep. Frank said about HUD's letter. "But apparently they just say 'strongly object,' … which means that when we get into a situation where we got the FHA and the GSEs that have been amended some, we may get closer."
