Democrats propose new agency to deal with foreclosures
The controversial idea by Senate lawmakers, criticized as a government 'bailout' by some, highlights the growing concerns about the economy.
WASHINGTON -- Senate Democrats today demanded a much more forceful response to the crisis of home foreclosures, including the possible creation of a new government body that would purchase failing mortgages and help troubled borrowers refinance into new loans.
The proposed entity, dubbed the Home Ownership Preservation Corp., echoes government efforts during the Great Depression. It was suggested by Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee.
Although Dodd offered few details, such a body would likely put some taxpayer money at risk if reworked loans held by the new agency also failed, and it quickly sparked opposition from Republican lawmakers. Nonetheless, the controversial idea underscored that ongoing worries about the economy are prompting stronger measures than last year.
"Every day that goes by without action means that more families are losing their homes," Dodd said, noting that Bush administration regulators acted "much too late and far too timidly" as the problem of rising foreclosures developed. "There's no doubt this problem will deepen," he said at a committee hearing.
In December, the Bush administration announced a voluntary initiative in which lenders would ease the terms of certain sub-prime loans made to borrowers with shaky credit in order to protect these people from losing their homes.
The initiative was meant to help borrowers who live in their homes and who have kept up with payments, but who cannot afford upward resets in their monthly payments that now loom.
Today, however, an influential U.S. regulator complained that lenders were moving at an "unacceptably slow" pace to help such borrowers.
"It is important that [lenders] demonstrate and document real progress soon or they invite regulatory and legislative action to supplement the industry's action," Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., told Senate members. "Speed is crucial," she added.
Yet even as concerns continue to grow about mortgage foreclosures -- and the possibility that weakness in housing is pulling the broader economy into a recession -- lawmakers remain divided on what government should do about the problems.
The proposed Home Ownership Preservation Corp., for example, prompted criticisms of a government "bailout" that would put taxpayers on the hook for costs that should be borne by speculators and unwise lenders.
"I am concerned that further government action will expose taxpayers to excess risk or be a bailout," said Sen. Jim Bunning (R-Ky.), adding: "I don't think anyone here wants to do that."
jonathan.peterson@latimes.com
