Democrats Propose a Depression-Era Aid Model
The idea of recreating a Depression-era agency to purchase defaulted mortgages and prevent widespread foreclosures is gaining traction in the House and Senate.
Senate Banking Committee chairman Chris Dodd, D-Conn., is working on legislation to create a Federal Homeownership Preservation Corp. that would purchase "distressed" mortgages from lenders and investors at a discount and provide a new 30-year fixed-rate mortgage to homeowners.
Those mortgages could be insured by the Federal Housing Administration or purchased by Fannie Mae or Freddie Mac.
His approach is modeled after the Home Owners' Loan Corp. that rescued one million homeowners from foreclosure during the Great Depression. "It would allow us to deal with this foreclosure matter in a creative way, one that has been tried before and I think worked well," Sen. Dodd said at press conference last week.
American Enterprise Institute resident fellow Alex Pollock recently authored a paper about the HOLC entitled "Crisis Intervention in Housing Finance."
Sen. Dodd credited the conservative think tank for promoting the concept.
House Financial Services Committee chairman Barney Frank, D-Mass., said he has talked with Sen. Dodd about a HOLC-type entity. However, Rep. Frank wants a program that can buy up foreclosed properties to help stabilize neighborhoods.
"We are now talking seriously about" both concepts, Rep. Frank told reporters. He said committee staff is working on a legislative package to deal with foreclosures, but it will not be part of an economic stimulus bill that Congress wants to pass in a few weeks.
Separately, Rep. Mark Kirk, R-Ill., called on House and Senate leaders to include $25 billion in the stimulus bill to capitalize a new Home Owners' Loan Corp.
"The HOLC for the 21st Century will provide stability to a volatile market and help lower-income borrowers stay in their homes," Rep. Kirk said.
Under his plan, the new federal agency would be authorized to purchase defaulted mortgages for three years and then liquidate its portfolio. The original HOLC had a three-year window to purchase defaulted mortgages. The agency liquidated its portfolio at a small profit to the government in 18 years and closed its doors.
"This is an economically sound and fiscally responsible solution to the subprime crisis," Rep. Kirk said.
Sen. Dodd indicated that it would be very difficult to get HOLC funding in the stimulus package that congressional leaders and the White House are trying to negotiate and pass quickly.
However, the Senate Banking Committee chairman said he plans to explore the HOLC concept as he holds extensive hearings on how to reduce foreclosures and stimulate the economy. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/