White House swayed on mortgage aid
The administration backs write-downs by lenders, but critics seek more action.
WASHINGTON -- — With the Senate poised to take new action on the mortgage crisis and the House at work on far more sweeping proposals, the Bush White House is grudgingly giving ground on its ideological opposition to government intervention in the marketplace.
After months of reluctance to pressure lenders to write down the principal on troubled mortgages, the administration announced Wednesday that it is now willing to do just that.
Expanding an existing program, the Federal Housing Administration will allow borrowers who are behind on their payments and owe more on their homes than they are worth to refinance with a federally insured loan.
Given the more aggressive proposals in Congress, however, further concessions probably lie ahead. Indeed, for months, bank regulators and officials from the Treasury Department, along with the Federal Reserve, have been feeding ideas for large-scale government action to Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee.
But while critics blasted the White House plan, Frank welcomed it. He called it an acknowledgment that, with the housing industry continuing to decline and the nation heading toward more than 1 million home foreclosures by year's end, direct government intervention was needed.
"I'm pleased to see that the Bush administration now agrees with that approach," Frank said, declaring that the White House proposal followed the approach -- if not the scope -- of his own plans.
"There is a lot of common ground here," Brian Montgomery, commissioner of the Federal Housing Administration, told Frank's committee. The agency would implement the White House plan.
Elsewhere, the relatively narrow scope of the proposal and questions about how effectively it could be implemented drew fire.
Michael Barr, a University of Michigan law professor who had worked in the Treasury Department on housing and financial oversight, said the administration's slowness to react comes from a laissez-faire approach to markets and regulation.
In effect, he said, the administration still sees the problem as a market correction when the consensus among regulators and lawmakers seems to be that it's a market failure.
"I think there are these ideological blinders that limit their ability to act quickly and decisively. They are scared to use the government to make the world a better place," Barr said.
