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Congress Irked By Lack Of Help For Homeowners


As Treasury Secretary Paulson tries to push through the emergency bailout plan, there are growing calls from both sides of the aisle to build in protection for homeowners facing foreclosure. NPR's Chris Arnold reports.

CHRIS ARNOLD: Many lawmakers say the Paulson plan bails out Wall Street without doing anything to help the millions of Americans who got the bad loans that the Wall Street firms were selling. Meanwhile, the foreclosure mess is dragging down the housing market and the economy. Senate Banking Committee Chairman Christopher Dodd questioned Secretary Paulson on this point.

Senator CHRISTOPHER DODD (Democrat, Connecticut; Chairman, Senate Banking Committee): Why didn't we include some mitigation for foreclosure as part of this? Not because we want to send a message that we care about Main Street, but because if we don't address that, bad mortgages out there are still going to be a lingering problem, and our ability to address this is going to be less.

Secretary HENRY PAULSON (Treasury Department): Mr. Chairman, thank you very much. As we thought about what is the best thing we could do...

ARNOLD: Paulson fell back on the administration's previous efforts to aid homeowners, but that may not convince lawmakers. Despite those earlier efforts, it looks like more than a million people are getting foreclosed on this year. That number keeps growing. And it wasn't just Democrats questioning Paulson. Richard Shelby is the ranking Republican on the banking committee.

Senator RICHARD SHELBY (Republican, Alabama): The plan does nothing to address the root cause of the crisis, the rising default rate on mortgages. While Wall Street banks get to sell their bad investments to the Treasury Department, homeowners will still be saddled with mortgages that they cannot afford.

ARNOLD: Obviously there are some homeowners you can't help, but there are many others facing foreclosure who have steady jobs. They just borrowed a little too much, or some got lied to about what their payments would be. But the industry is all tangled up. A senior manager at one major mortgage servicing company that we spoke to said, of the loans the firm managed that were on the verge of foreclosure, less than one percent were getting any kind of meaningful modification to help the homeowners. Henry Paulson asked for a bazooka to combat the financial crisis back when he sought authority to take over Fannie Mae and Freddie Mac, and now Democrats want to break out a bazooka of their own, a plan to change the bankruptcy law. Mike Calhoun is the president of the Center for Responsible Lending.

Mr. MICHAEL CALHOUN (President, Center for Responsible Lending): The bankruptcy courts are well set up to handle this. I mean, the bankruptcy court presently handles over a million families filing bankruptcy each year in this country.

ARNOLD: And when the courts do that for other types of loans, a bankruptcy judge can intervene and order a lender to modify a loan, say by lowering the interest rate. That way the borrower can afford it, and the creditor can keep collecting something. The court can do that for a mortgage on a second home, but not for a primary residence. Democrats want to change that.

Mr. CALHOUN: To allow courts to modify home mortgage loans in the same way that they modify other debts, it requires for the borrower to show that they can't afford their loan as it's currently structured, but with it being modified they could afford it.

ARNOLD: Ira Rheingold heads up the National Association of Consumer Advocates. He says, after all, the government is restructuring the debt of all these financial firms with this giant bailout.

Mr. IRA RHEINGOLD (Director, National Association of Consumer Advocates): It seems OK to restructure Wall Street firms and insurance companies, but it's not OK to allow American homeowners to go into bankruptcy to restructure their debt so they can actually keep their home? And in fact, if they can keep their home, that's the best solution for the American economy, because that would stabilize housing prices.

ARNOLD: But the financial services industry is fiercely opposed to any change in the bankruptcy law. Steve Bartlett is president of the Financial Services Roundtable, a big industry lobbying group.

Mr. STEVE BARTLETT (President, Financial Services Roundtable): Well, I think it's the wrong approach. If you put it in the hands of a bankruptcy judge, then you gum up the whole system for future homebuyers. And then people that should get credit in the future wouldn't be able to get it.

ARNOLD: Bartlett argues the change would mean higher risk for lenders, which would push up interest rates overall. It's hard to say whether that would actually happen. There's all kinds of things that affect interest rates. But if it did jack up rates, that would not be good for the housing market or the economy. And with that argument, the industry has defeated the bankruptcy proposal repeatedly in the past. But, Mike Calhoun says, maybe this time will be different.

Mr. CALHOUN: Clearly there's more leverage than there ever has been or ever will be that if the banks are asking for this extraordinary help that directly benefits them and their executives, it seems unfair for them to be saying, but don't provide help like a change to the bankruptcy code for homeowners.

ARNOLD: Still, Calhoun lay odds at about 50-50 that the proposal can make it into the emerging financial markets bailout plan. Chris Arnold, NPR News.

WERTHEIMER: Lawmakers and economists have plenty of objections to the bailout plan. You can read about some of their criticisms and changes they'd like to make at npr.org. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.
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