Democrat [Barney Frank] urges $20bn subprime plan

Financial Times ^ | February 27 2008 00:04 | By Chris Bryant and Krishna Guha in Washington

[DeaconBenjamin]

A leading Democratic lawmaker on Tuesday called for $20bn in public funds to be made available to the Federal Housing Administration to purchase and refinance pools of subprime mortgages.

The proposal from Barney Frank, Democratic chairman of the House financial services committee, comes amid indications that Democrats in Congress are becoming increasingly willing to advocate direct taxpayer-funded intervention in the mortgage market – widening the political divide with the Bush administration.

Mr Frank told the Financial Times there was a “lot of support for this proposal in the House”. Democrats in the Senate also appear increasingly sympathetic to taxpayer-funded intervention.

Christopher Dodd, the Democratic chairman of the senate banking committee, last month called for $20bn in seed money to create a “homeownership preservation corporation” that would purchase loans at a discount.

Mr Frank said “we can do it through an existing vehicle rather than a new vehicle”. But the underlying logic of the two proposals is similar.

Mr Frank said that under his plan, the FHA would “buy up packages of mortgages but at a substantial discount”. It would then refinance the loans.

This would require about $20bn up front, but Mr Frank stressed that “the FHA would be repaid” as the loans were refinanced. The ultimate cost of the scheme to US taxpayers, under Congressional scoring practices, would probably be about $3bn to $4bn.

Mr Frank also called for between $5bn and $10bn in loans to the states, which would be used to purchase and refurbish foreclosed homes, and extra funding for counselling services.

Mr Frank said the “lesser efforts” to tackle the mortgage crisis to date “have not been very successful”. The housing crisis was “getting worse not better”.

The externalities involved in foreclosures justified the commitment of public funds. “We are talking about terrible impact on society.”

The main difference between the Frank plan and some of the other proposals circulating is the scale of the intervention envisaged.

Alan Blinder, a professor of economics at Princeton, has called for a new government vehicle modelled on the Home Owners Loan Corporation of the 1930s to borrow between $200bn and $400bn to buy up and restructure distressed loans.

Mark Zandi, chief economist at Moody’s Economy.com told the House financial services committee that it would take about $250bn in upfront funds to purchase all 2m loans expected to end in foreclosure by the end of this decade.

Mr Frank said “reality constrains” and his plan was limited to $20bn for the FHA because of the budget deficit and the need to meet pay-as-you-go spending rules.

[LibFreeOrDie]

Why should taxpayers underwrite what are really gambling debts?

[vox_freedom]

Dear Rep. Barney,
Will homosexual partners be eligible for this bailout?

[Eric in the Ozarks]

If my neighbor loots $100,000 out of his house to buy a motor home, do I get a ride ?

[javachip]

but Mr Frank stressed that “the FHA would be repaid”

The new FHA loans will get repaid the same way the current bank loans are repaid - many of them won't.

Here's a good way to see how serious Mr. Frank is. Include a provision so that he covers the defaults out of his personal funds. Once he's broke, other bill co-sponsors start forking over their money. Then every congresscritter who voted for the bill. If they're so sure the taxpayers won't end up on the hook for this, they shouldn't have any problem putting up their personal assets to back the plan.

If this was such a great idea, Goldman Sachs, Citigroup, Bank of America, sovereign wealth funds etc. would have already set up the joint venture to do it. To some extent, they have done that - but they're not interested in refinancing those who can't pay them back (at least not any more). So, under Frank's plan, guess who gets to pay for the deadbeats.

[Retired Chemist]

I read that 7% of mortgage holders are in trouble and many are blacks and Hispanics.

[JerseyHighlander]

IT WAS BARNEY FRANK PUSHING TOP DOWN IDEOLOGICAL AND IDIOTIC LEGISLATION TO PROHIBIT REDLINING THAT CAUSED THIS REAL ESTATE BUBBLE IN THE FIRST PLACE.

BARNEY, STOP HELPING!!

[vastrightwing]

Someone who takes it in the rear, suggests taxpayers take it in the rear. Go figure!

[Etoo]

[Mr Frank said the “lesser efforts” to tackle the mortgage crisis to date “have not been very successful”. The housing crisis was “getting worse not better”.]

 

Gee Barney, I wonder why....

 

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During the House Financial Services Full Committee Hearing on "Recent Events in the Credit and Mortgage Markets and Possible Implications for U.S. Consumers and the Global Economy",  Chairman Barney Frank left the hearing in order to attend a meeting in support of legislation that would force American employers to hire homosexuals.   That says a lot about Barney's priorities.

 

Barney "Fife" Frank.

Financial Services Watchdog

 

This watchdog only has one tooth.

Barney's boyfriend makes him keep it in his pocket

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