WASHINGTON – The White House promised on Tuesday to veto a bill seeking to follow up the recent economic stimulus package with several proposals to shore up the struggling housing market and reduce foreclosures.
Senate Democrats had hoped to begin debate on the housing bill on Tuesday but action has been put off until later in the week, if not later, as Republicans kept the subject on Iraq.
The Democratic housing bill would change bankruptcy laws to allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages, provide $4 billion to communities to purchase and rehabilitate foreclosed homes, and improve disclosure of subprime mortgage loans in hopes that borrowers won't be surprised by big payment increases.
But the White House said the $4 billion for purchases of foreclosed homes is too expensive and "would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners."
The provision rewriting the bankruptcy code, the White House said, would allow borrowers to effectively rewrite their mortgage contracts, leading lenders to tighten their standards and raise interest rates.
The White House said both provisions would in fact slow the recovery of the housing sector.
The Democratic measure also contains provisions stripped from the Senate's version of the stimulus bill to boost mortgage revenue bonds and add flexibility to help homeowners refinance subprime loans and to allow homebuilders and other money-losing businesses to reclaim taxes previously paid.
The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.
The Mortgage Bankers Association, which is lobbying against the measure, says it would hurt borrowers by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention on behalf of some homeowners.
In response to the criticism, Democrats announced they would tighten the bankruptcy provision so that it would only apply to subprime borrowers who can prove that they can't afford the current mortgage and permit bankruptcy judges to reduce interest rates to the prime interest rate plus a premium for lender risk.