WASHINGTON — The Senate Banking Committee on Tuesday is expected to pass a bipartisan measure that creates a $300 billion loan guarantee program to refinance distressed mortgages and slow a rising national tide of foreclosures.
A late-hour compromise, reached Monday, is expected to smooth its passage through the full Senate floor and on to President Bush.
The legislation is intended to help stop the nationwide freefall in home prices and the resulting flood of foreclosures. In the first three months of 2008, foreclosure filings totaled more than 649,000 homes, 112 percent more than in the first quarter of 2007.
"We've taken the word partisan out of this," Sen. Christopher Dodd, D-Conn., the committee chairman, told reporters late Monday in a hastily scheduled conference call. The committee's ranking Republican, Alabama Sen. Richard Shelby, went on CNBC television with similar upbeat assessments.
The House of Representatives has passed virtually identical legislation, and after greeting the House bill with strong opposition the White House late Monday struck a more conciliatory tone.
"We look forward to seeing the details of the bill as it goes through Senate mark up — especially provisions to expand programs of the Federal Housing Administration (FHA). We want to ensure that FHA expansion is done in a responsible and effective way," White House Spokesman Tony Fratto told McClatchy.
Like the House measure, the Senate bill would be voluntary. If a mortgage lender or loan-servicing company agreed to write down the balance on a distressed mortgage by 15 percent — based on the current market value of the loan, not the original value — the federal government would step in and guarantee the newly refinanced loan via the FHA.
There was no immediate response to the compromise from the Mortgage Banker's Association or other lender groups. But Dodd said he was confident that lenders see value in the legislation.
"We've had a positive reaction. It's a far better outcome than sitting there with zero" if a borrower goes to foreclosure, Dodd said. "I've heard nothing but positive reactions from the lending institutions."
Dodd said he hopes the measure will staunch foreclosures.
"The primary goal here is to keep people in their homes, but also to help establish a floor, a bottom to this," Dodd said.
A compromise had been expected late last week, but gave way to more negotiation. Dodd said he worked to ensure that Republicans got what they most sought — that in most cases no taxpayer money would be used to rescue troubled mortgages. The original cost estimate of $1.7 billion was scaled back sharply by delaying the effort's start to Oct. 1 and ending it in 2011 instead of in 2012.
The new $500 million price tag would be funded by quasi-government mortgage bundlers Freddie Mac and Fannie Mae. They're often referred to as government-sponsored enterprises, or GSE's, and like the House legislation, Dodd's bill provides a new regulatory framework for these entities.
That's important because Fannie and Freddie play a vital role in making more money available for mortgage lending. President Bush has for months called on Congress to pass GSE reform legislation. The House and Senate bills both call for a strong independent regulator to oversee the two entities, but prevent this regulator from forcing either of the two to raise capital and prevent the regulator from addressing system-wide risks — the job of the Federal Reserve and banking regulators.
President Bush was reserved Monday when he appeared before the cameras with Treasury Secretary Henry Paulson before word of the compromise was announced.
"We look forward to working with Congress to get a good piece of legislation to my desk and that helps our fellow citizens and helps us get through this housing issue," Bush said. The president didn't make any mention of the loan guarantee proposal, saying only that government "ought to be helping creditworthy people stay in their homes" and repeating that GSE reform "will really help stabilize the markets and make it easier for people to stay in their homes."
David Lightman in Washington also contributed to this story.