For those of you who watch the NewsHour with Jim Lehrer, which is, in my opinion, easily the best news program on television, you were just treated to Barney Frank crushing Tom Price, a Republican representative from Georgia, in a debate on housing. The topic was the FHA Housing Stabilization and Homeownership Retention Act of 2008, also known as Barney Frank’s housing bill. President Bush yesterday threatened to veto the bill if it reached his desk, but the House passed it anyway by a 266-154 vote, with 39 Republicans voting with Democrats.
Price used the same GOP talking points that President Bush used yesterday, suggesting that the bill will cost taxpayers $300 billion, is a bailout for lenders and speculators, and is not really necessary because the administration’s plans (Hope Now and FHA Secure) have helped close to 2 million people already. He also suggested that the market will find the solution to the problem.
Frank was in classic form, saying that Price’s points were the silliest thing anyone had ever heard, even those who watch the Cartoon Network (full disclosure: I watch the Cartoon Network). He dealt with the $300 billion price tag first:
(i) ”If every mortgage is insured and the day after they were insured nobody made a payment and when the FHA took the houses that had defaulted and got $0 for them, then it’d cost $300 billion.” So, it’s ridiculous to suggest that it’ll cost $300 billion. In fact, an analysis by the Congressional Budget Office indicated that the plan could help about 500,000 homeowners and would cost approximately $2.7 billion. Moreover, the bill is subject to appropriations, so technically it can’t cost more than $2.7 billion, unless Congress chooses to expand and extend it past its four-year limit.
(ii) Frank noted that FHA Secure program is also backed by a government guarantee, and therefore also puts the taxpayers at risk. Moreover, while the administration threatened to veto Frank’s bill, it was more than happy to voice support for the Fed’s $30 billion loan to support JP Morgan’s purchase of Bear Stearns. That plan also puts taxpayer money at risk, yet the Treasury department was fully supportive of it.
(iii) As for the suggestion that Hope Now is helping a lot of homeowners, let’s just look at their own data. The plan officially started on October 10, 2007. In the fourth quarter of 2007 and the first quarter of 2008, the percentage of loans that were modified (i.e. either the principal was reduced, the interest rate on the mortgage was reduced, or the loan maturity was extended) stood at 33%, versus 67% that were repayment plans (i.e. you might be allowed to defer or reschedule the payments so that you can catch up, but you’re still expected to pay the full amount of what you owe and the original loan maturity remains). So, 2 out of every 3 loans in the last two quarters are repayment plans that don’t necessarily help troubled homeowners in the long-term. If home prices continue to fall, which is likely for the remainder of this year, those people will see the value of their home decline but still owe the original amount, or they’ll be “under water.” In this situation some homeowners will just walk away from their houses, because it doesn’t make sense to keep paying. That’ll lead to higher foreclosures and rising home inventory, both of which are terrible for home prices. Although Hope Now’s modifications did rise to about 36% of all mortgage workouts in the first quarter of 2008, there’s still a long way to go to provide long-run relief for those in danger of losing their homes.
(iv) As for the market solving this problem…I’m not even going to dignify that with a response.
Barney Frank has a sensible, proactive approach to today’s housing crisis, and many of those shouting down his plan are simply doing it because of ideological reasons and likely because they haven’t bothered to actually read his plan (or they don’t understand it). I pity the fool who has to debate Barney on the housing bill.
TAGS: Congress, debate, georgia, GOP, pbs, pbs.org, Republicans
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