Bush Vows To Veto A Mortgage Relief Bill

Bush Vows to Veto a Mortgage Relief Bill

http://www.nytimes.com/2008/02/27/bu...AtLfCY1kIDXajQ

By EDMUND L. ANDREWS
Published: February 27, 2008

WASHINGTON — President Bush sided with banks and mortgage lenders on Tuesday, threatening to veto a bill being offered by Senate Democrats that would give more bargaining power to homeowners who face foreclosure.

Opening what is likely to be an intense political battle in the deepening mortgage crisis, the White House said it strongly opposed the bill, which would let bankruptcy court judges modify the terms of a mortgage as part of the restructuring of a debt in a bankruptcy filing.

Supporters of the legislation say it could prevent as many as 600,000 home foreclosures affecting people who took out tickler or other complicated mortgages and now face steep increases in interest rates and monthly payments.

Consumer and civil rights groups argue that the change in bankruptcy law would provide the surest way of helping families renegotiate mortgages that have been bundled into complex securities and sold to investors.

But mortgage lenders, and the Wall Street firms that purchased the loans, have mounted a campaign against the bill, saying it would send a chilling message to investors and lead to higher borrowing costs in the future.

“We’re pulling out all the stops on this,” said Stephen O’Connor, chief lobbyist for the Mortgage Bankers Association. “How will lenders and investors react to the added risk? They will likely charge a higher interest rate, likely charge more points on the mortgage and likely demand higher down payments.”

Unlike most other kinds of debt, including loans for vacation homes and rental properties, mortgages on a primary residence are outside the power of federal bankruptcy judges to change.

In a statement issued Tuesday afternoon, the White House said the bill would “undermine existing contracts” and lead to tighter credit.

“These and other provisions of the bankruptcy-related provisions in the bill would fundamentally alter the expectations of parties to hundreds of thousands of home purchases after the fact,” it said. It also objected to provisions that would provide $4 billion for state and local governments to redevelop abandoned homes and provide money for homeowner counseling programs.

The Bush administration has started a program it calls Hope Now, which encourages mortgage lenders to modify loans and sometimes freeze interest rates for people who face big increases in their monthly payments.

But that program is voluntary, and the guidelines for providing relief are so narrow that it is expected to help only a tiny fraction of the 1.8 million subprime mortgage borrowers facing increases in these initial rates. Nor would the program provide help to people whose homes have declined in value and can no longer be sold for enough to pay off the mortgage.

Supporters argue that the bill could prevent more than 600,000 foreclosures, which are often more costly to lenders than reductions in monthly payments, and would prevent a chain reaction of declines in home prices in neighborhoods surrounding the foreclosed homes.

“Avoiding foreclosure can’t be just a part of the proposal, it is the heart of the proposal,” said Senator Richard J. Durbin, Democrat of Illinois and sponsor of the Senate measure.

Senate Democrats have narrowed Mr. Durbin’s original bill, tailoring it to people with particular kinds of problems and applying it to existing mortgages rather than to all mortgages in the future.

For practical purposes, Democrats will need 60 votes before debate can begin. Democratic leaders had originally planned on taking up the matter Tuesday, but decided instead to begin debate on legislation to scale back military operations in Iraq.