Senate Majority Leader Harry Reid (D-Nev.), Speaker Nancy Pelosi (D-Calif.), Senators Chris Dodd (D-Conn.), and Charles E. Schumer (D-N.Y.), and Reps. Barney Frank (D-Mass.) and Carolyn Maloney (D-N.Y.) offered a plan Wednesday to slow rising home foreclosures caused by the subprime mortgage crisis.
The Democrats presented a plan that includes increasing federal funding for foreclosure prevention and temporarily raising the portfolio caps on Fannie Mae and Freddie Mac. The Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and Freddie Mac, turned down Fannie Mae's August request for a 10 percent increase in the cap on its mortgage investment holdings.
The leaders also called on President George W. Bush to appoint a special advisor or "mortgage czar" to oversee and coordinate the federal government's response to the subprime meltdown.
According to the Associated Press, the White House rejected the concept of a "mortgage czar" and cited Congress' failure to create legislation to reform Fannie Mae and Freddie Mac and overhaul the Federal Housing Administration.
At press time, there was no comment from officials at Fannie Mae and Freddie Mac.
Reid, who represents Nevada, knows first hand about the aftermath of excessive subprime lending. According to Irvine, Calif.-based RealtyTrac, an online marketplace for foreclosure properties, Nevada has had the highest foreclosure rate in the U.S. every month of 2007. In the most recent report, Nevada posted one foreclosure for every 165 households - more than three times the national average.
"If we do not act, subprime lending could end up eliminating more homeowners than it created, and the number of Americans foreclosed out of their homes could exceed the number of Americans from the Gulf Coast forced out of their homes by Hurricane Katrina," Reid said. "And no state in the nation is hit harder by this meltdown than Nevada, where subprime borrowers make up a quarter of all mortgage loans."
The lawmakers also agreed to press the administration for additional resources to fund HUD-approved non-profits that are helping homeowners to stave off foreclosures.
"These non-profits have been inundated with borrowers, whose loans have reset to higher monthly payments, and need assistance to refinance with the lender that holds their mortgage," Reid said in a statement. "This negotiation and counseling process is time consuming and labor intensive. But compared to the costs of a family losing their home to foreclosure, the costs are small."
Frank, the chairman of the House Financial Services Committee, says it is necessary to create a "comprehensive approach" that would include the following elements:
- Helping people who may lose their homes because of resetting adjustable rate mortgages;
- Creating legislation to make a recurrence of the subprime crisis much less likely; and
- Constructing affordable housing so that low and moderate income earners have more housing choices.