Bush embraces Barney Frank housing solution

Washington Post:

The Bush administration is finalizing details of a plan to rescue thousands of homeowners at risk of foreclosure by helping them refinance into more affordable mortgages backed by public funds, government officials said.

The proposal is aimed at assisting borrowers who owe their banks more than their homes are worth because of plummeting prices, an issue at the heart of the nation's housing crisis. Under the plan, the Federal Housing Administration would encourage lenders to forgive a portion of those loans and issue new, smaller mortgages in exchange for the financial backing of the federal government.

The plan is similar to elements in legislation proposed two weeks ago by Barney Frank (D-Mass.), who chairs the House Financial Services Committee, officials said. Administration officials said they believe they can accomplish some of the same goals through regulatory changes, though important details have yet to be nailed down.

If enacted, the plan would mark the first time the White House has committed federal dollars to help the most hard-pressed borrowers, people struggling to repay loans that are huge relative to their incomes and the diminished value of their homes. That may offer encouragement to the banking industry and help silence Democrats, who have accused the White House of rescuing Wall Street investment banks while ignoring distressed homeowners. But it could agitate conservatives, who are likely to view the FHA plan as yet another government bailout.

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The chance that the plan will silence Democrats is remote. They view the problems of borrowers who made bad choices as an opportunity to beat up Republicans and they are not going be quite even of their solutions are embraced. Conservatives will probably remain silent because they still don't have a solution they are willing to embrace.

What is desperately needed is a handle on what went wrong that goes beyond the bad faith claims of "predatory lending." As I noted before, lenders have no interest in lending money to people who can't pay so they can acquire assets worth less than they loaned to begin with. The whole concept of predatory lending makes no sense. Further, when you consider that the financial institution's are the ones taking the big hit when homeowners walk away, then even the Frank plan where they absorb losses it is still a bailout to them.

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