In a rare show of speed suggesting the urgency of the nation's housing crisis, top Senate leaders announced Tuesday that Democrats and Republicans will try to hammer out a deal, perhaps by noon Wednesday, to offer relief to homeowners facing foreclosure. Acting on the first full day of business after a two-week recess, Senate Majority Leader Harry Reid, a Nevada Democrat, held a rare joint press conference with Minority Leader Mitch McConnell, a Kentucky Republican, to announce a breakthrough in talks. "This is serious business," Reid told reporters. "The smoke is the housing crisis, and the fire is the economy....This is a crisis, and the only way that it's going to be solved is to work together."
McConnell predicted that a bill, likely to have several components, could be completed by week's end. "We're going to legislate," he said, indicating that the issue was more important than politics. A quick, bipartisan deal on a major issue is a once-in-a-blue moon occurrence in Congress. Notable exceptions were the just-passed $152 billion economic stimulus package and Hurricane Katrina relief. The deal, in essence, will see the top Democrat and Republican on the Senate Banking Committee, and their aides, try to forge a housing bill that will meet approval on both sides. "Inaction is not an option," said Sen. Chris Dodd, the Connecticut Democrat who chairs the committee. He said Bridgeport, Conn., a city of 138,000 and the state's largest, has had 6,000 foreclosures. "We're going to come together in the next number of hours and days to pull together a package that will offer some hope and relief to people facing foreclosure."
"Our staffs will work now and probably all night," said Sen. Richard Shelby of Alabama, the top Republican on the panel. The lawmakers signaled they wanted quick action, as happened with the economic stimulus package that produced tax rebate checks that will be arriving soon at many households. How the final measure will look is unclear, since both sides indicated they would allow amendments to be offered. And whether the House will sign on to the potential Senate bill is in question. Separate proposals have been offered there, with hearings scheduled for next week. But senators indicated that a major sticking point, pertaining to bankruptcy proceedings, appeared to have been resolved. Dick Durbin of Illinois, the No. 3 Democrat in the Senate, noted that Chicago and surrounding parts of Cook County face the second-highest number of foreclosures in the United States, after Los Angeles County. The high number of foreclosures, triggered by the collapse of the subprime lending market, has roiled the economy and led to a credit crunch. Durbin said the local impact is huge: Foreclosures leading to lost property tax revenues in turn threaten school funding and municipal services such as fire and police protection.
He said the stalemate between the two sides was broken because "our Republican friends went home for Easter and saw all the for-sale signs and reconsidered their position." Just before the recess, Senate Republicans refused to allow a vote on a housing stimulus package endorsed by Reid. Many Democrats said the lightning-speed approach to reconciling numerous housing proposals put forth in Congress stemmed from the federal government's rescue of investment bank Bear Stearns last month. That set up a debate: Should Uncle Sam help Wall Street over Main Street?
Durbin took a shot at President Bush for not acting more forcefully than he has to stem the country's economic problems. "The administration has been entirely too tentative. Even Herbert Hoover had some initiatives during the Depression," he said. But Republican Sen. John Cornyn of Texas said many of his constituents regarded the economic stimulus package "as largely a political exercise." He urged a first-do-no-harm approach to a housing stimulus package.
Recalling talks he had just had on Wall Street, Cornyn said it was hard for him to find anyone who would say where problems in the housing sector—big, complex problems, he called them—would lead. It's not only homeowners who have been hurt, but investors who bought packaged subprime mortgages and now have an investment "worth less than they thought," he said.
According to Durbin, a tentative agreement on the bankruptcy issue would work like this: Homeowners at risk of losing their primary residence and who filed for bankruptcy could see the terms of their mortgages modified by a judge. Only people with existing mortgages at the time a law was enacted would qualify, plus they would need to meet income criteria. The judge could not lower the principal of the loan to below the fair-market value of the home, he said. The interest rate would be prime plus a premium to account for the lender's risk. If the home was sold within five years, any profit realized would go to the lender, not the owner.
Durbin said it's estimated that 600,000 homeowners would seek Chapter 11 bankruptcy protections owing to foreclosure, but fewer would qualify for a mortgage modification since an income stream would be required. Republicans earlier expressed alarm that letting future homeowners use the remedy would result in higher interest rates—up to 2 percentage points more—for all those who refinance or take out new mortgages.