White House, Lawmakers Ponder Housing Bailout On the heels of federal intervention following the Bear Stearns collapse, there are fresh indications that the Bush administration and House Democrats are willing to negotiate a plan to use taxpayer money to stem the flood of foreclosures.
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White House, Lawmakers Ponder Housing Bailout

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White House, Lawmakers Ponder Housing Bailout

White House, Lawmakers Ponder Housing Bailout

White House, Lawmakers Ponder Housing Bailout

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On the heels of federal intervention following the Bear Stearns collapse, there are fresh indications that the Bush administration and House Democrats are willing to negotiate a plan to use taxpayer money to stem the flood of foreclosures.

MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

There have been some dramatic moves by the government this week to intervene in the ongoing credit crisis. The Federal Reserve saved Bear Stearns from a messy bankruptcy on Sunday. It also changed its rule book to extend credit to Wall Street investment banks for the first time. Today, regulators freed up the lending giants Fannie Mae and Freddie Mac to spend billions more dollars to get the mortgage market moving again.

BLOCK: But the underlying problem remains. Millions of homeowners still face foreclosure and that could still push the economy into a severe recession.

Now, there are signs that lawmakers in Washington are prepared to do more, as NPR's Chris Arnold reports.

CHRIS ARNOLD: When the Fed acted to stop a total collapse of Bear Stearns this week, it stepped over a line that it hadn't crossed before in this crisis. It put itself on the hook for some of the bad investments made by Bear Stearns. That marks a shift in how far the government's willing to go to intervene here.

Mr. MARK ZANDI (Chief Economist and Cofounder, MoodysEconomy.com): What's changed is that policymakers now think that government should put itself on the line; taxpayer money should be put up.

ARNOLD: Mark Zandi heads up MoodysEconomy.com. He's an economist who's been meeting with officials of the Fed, the Treasury Department, and with members of Congress. He says more of them are now advocating, or at least considering, basically doing for homeowners what the Fed did for investment banks; that is, take on the risk itself for at least some of the bad loans that are out there.

Mr. ZANDI: This was obviously a very extreme idea just the few weeks ago, but now is well into the mainstream. The Congress and the administration are thinking that lots of economists, including myself, are suggesting that this should in fact happen.

ARNOLD: The idea behind some of the proposals is that they probably wouldn't cost the government that much and they'd save the economy from much bigger problems.

Congressman Barney Frank.

Representative BARNEY FRANK (Democrat, Massachusetts): We need to reduce the amount of foreclosures coming, because the economy can't recover until we do that.

ARNOLD: Frank is introducing a bill that he says could help between one and two millions homeowners. That would be more than all the previous efforts. He wants the government to help refinance their loans. Frank says the new bill would not be a bailout. For homeowners to qualify, they'd have to be able afford a reasonable interest rate and their lender would have to take a haircut on the loan - that is reduce the amount owed to 90 percent of the current value of the house.

Rep. FRANK: So we are saying to the people who either made the loans or now own those homes that was sold, this begins with you recognizing that you'll never going to get back as much money as you might have thought. You lent irresponsibly and no one's bailing you out. You have to accept the fact that you're going to get less money.

ARNOLD: The government would then use the Federal Housing Administration to guarantee the loans allowing outside companies to do the refinancing. Frank says the industry and homeowners would pay fees into a fund to cover losses for many loans that still went bad. But the government would bear the risk if more loans defaulted than expected. The White House had been opposed to such proposals involving taxpayer money, but now it's signaling a willingness to listen.

Mark Zandi.

Mr. ZANDI: The administration is changing its tune, obviously, in response to the weakening economy, the turmoil of the financial system. They have got to be more aggressive and I think they are now willing, at least publicly, to listen to the Democratic Congress has to say.

ARNOLD: Still, even if Barney Frank's bill passed, it wouldn't force lenders to participate, so it might not help as many people as advertised. Another bill out there, though, would empower bankruptcy judges to order lenders to help borrowers and change their loan terms. There's still a lot of opposition to that. Mike Calhoun is the president of Center for Responsible Lending. He says under other proposals, the Federal Government would loan or grant billions of dollars to cities so they could buy up foreclosed properties.

Mr. MIKE CALHOUN (President, Center for Responsible Lending): Then resell them to non-profit organizations such as Habitat for Humanity, who in turn picks up the houses and sell them to new homeowners.

ARNOLD: Not all these bills will pass; there are still lots of economists and lawmakers who are opposed to putting taxpayer dollars on the line. But until the mess in the housing and credit markets gets better, we're likely to see increasing pressure to do just that.

Chris Arnold, NPR News.

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