WASHINGTON - Congressional Democrats and President Bush will agree on a bill to help half a million or more struggling homeowners get into lower cost mortgages, but it won't be through the bankruptcy courts, the chairman of the House Financial Services Committee predicted yesterday.
Efforts to let bankruptcy judges rewrite mortgages for strapped borrowers won't make it through Congress this year, Representative Barney Frank, Democrat of Massachusetts, said.
But if the mortgage industry refuses to participate in his plan to let such borrowers refinance into government-backed loans, Frank said, they can expect tougher regulation.
"If they're an obstacle to this, there's going to be a serious effort legislatively to reduce their role," said Frank, who will meet with mortgage servicers today.
Servicers will have to take losses on distressed loans "whether they like it or not," he said.
The darkening economic picture and the political calendar are giving lawmakers and the White House a powerful incentive to come together on a housing package, Frank said.
Republicans and the Bush administration are increasingly open to Democrats' calls for a housing-rescue package as they prepare to face voters in November, despite concerns about embracing what some call a government bailout that would put taxpayer dollars at risk.
"It would be very nice if we didn't have to do this at all," Frank said. "Some people who made irresponsible decisions to borrow more than they should have are going to be helped by this. . . . The alternative is to do nothing and have greater damage to neighborhoods [and] the economy.
"People are very afraid of being accused of not having done something to avoid [a] longer and deeper recession," he added.
Frank's package, scheduled for a committee vote next week, would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners. Servicers would have to agree to take a loss on existing loans, while borrowers would have to show they could afford to make new payments on refinanced mortgages. In the Senate, Senator Christopher J. Dodd, Democrat of Connecticut and Banking Committee chairman, is working on a similar measure.
A broader effort to impose stricter financial regulation on investment banks and other institutions will wait until next year, Frank said.