U.S. steps up response to housing crisis

The Federal Housing Administration takes a bigger role under most emerging plans.

By Gail Russell Chaddock | Staff writer of The Christian Science Monitor

from the April 14, 2008 edition

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Washington - Amid reports that potential losses in the US housing crisis could near $1 trillion, Congress, the White House, and even the leading presidential candidates are converging on a strategy to create a federal safety net for hundreds of thousands of families facing the loss of their homes.

At the heart of the emerging consensus is a bigger role for the Federal Housing Administration in helping borrowers refinance loans they cannot afford to pay.

The issue is no longer if but how the Depression-era agency, eclipsed by new financial instruments in the boom years of the housing market, should ramp up fast enough to deal with the millions of homeowners facing foreclosure.

Just weeks ago, key players in the housing issue were settling in for sustained combat over whether government or the market should sort out the crisis. But lawmakers are hearing from voters that government inactivity is no longer an option.

"This is an issue that strikes to the heart of America because of the love Americans have for their homes and the very special place homes hold in our culture," says Allen Sinai, chief global economist at Decision Economic, Inc., who has been advising Democrats on the housing policy. "It's a major reason why we're seeing very encouraging cooperation on this issue."

After gridlocking on a housing fix on Feb. 28, the Senate last week passed a bipartisan housing rescue package on an 84-to-12 vote. The plan includes $4 billion to help communities purchase and rehabilitate foreclosed properties and $13 billion in tax breaks for builders and new home buyers.

Also last week, the White House announced its own plans to beef up FHA involvement in the housing crisis.

But the most ambitious effort is unfolding in the House Committee on Financial Services, where Chairman Barney Frank (D) of Massachusetts is working up a comprehensive housing plan that aims to help 1.5 million families stay in their homes. The proposed bill, which is expected to be taken up in committee next week, gives the FHA authority to guarantee up to $300 billion in refinanced loans, if the lenders agree to reduce the outstanding principal on those loans.

"The FHA is the only agency in the federal government that can go into crisis mode and quickly help hundreds and thousands of people," says committee spokesman Steven Adamske.

On the campaign trail, Sen. John McCain, the presumptive Republican presidential nominee, launched his own housing plan following in the footsteps of Democratic candidates Sens. Hillary Rodham Clinton and Barack Obama. Until recently, Senator McCain had rejected a larger role for the federal government in the housing crisis.

But all competing plans require an FHA that is up to the task of dealing with a crisis that industry experts say is uncharted territory. Bush administration officials say that they have been pushing for FHA modernization for two years and that Congress has yet to act.

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