Effort Has Billions
In Loan Backing;
Bush Promises Veto

By MICHAEL R. CRITTENDEN and ELIZABETH WILLIAMSON
May 9, 2008; Page A3

WASHINGTON — The House passed a giant package of measures designed to tackle the housing crisis Thursday, but only after two days of bickering that signal turbulence ahead for the legislation.

Democrats and Republicans, abandoning the brief comity that helped them forge an economic-stimulus package earlier this year, argued over the procedures used to bring the bill to a vote. Another flash point was the millions in spending directed toward community groups Republicans said would fund Democrats’ get-out-the-vote efforts.

The House voted 266-154 in favor of the centerpiece of the legislation — $300 billion in federal loan guarantees — despite a White House veto threat. The battle reflected the package’s status as the biggest, most-comprehensive legislative response to the housing crisis likely to pass this year.

The heart of the legislation is a program to help struggling homeowners by providing them with new mortgages backed by the Federal Housing Administration. The guarantees would be provided if lenders agree to reduce the principal of a borrower’s existing mortgage.

Several Republicans characterized the plan as a bailout for lenders, speculators and irresponsible homeowners. Democrats responded it would cost little compared with the government’s potential exposure in the rescue of Bear Stearns Cos. Looming over the bill is the threat of a White House veto, especially on the question of cost.

The Congressional Budget Office estimates the loan-guarantee program could cost the federal government $2.7 billion through 2013. At the same time, the administration has said it is willing to compromise on certain aspects of the bill.

“They are sending mixed signals,” complained House Financial Services Committee Chairman Barney Frank (D., Mass.). “I’m waiting for the next letter to come from the Navajo code talkers.”

Almost 40 Republicans, many from states hard-hit by the foreclosure crisis, voted with Democrats to pass the measure, providing solid bipartisan support but falling about a dozen votes short of the two-thirds majority needed to override a potential veto. “Being from Ohio, it’s hard for me not to support it,” said Republican Rep. Deborah Pryce.

Focus now turns to the Senate, which has the option of taking up the House legislation. That is unlikely. Senate Banking Committee Chairman Christopher Dodd, (D., Conn.), has said he wants to unveil his own version of the legislation May 13.

Taxpayers for Common Sense, a nonpartisan budget watchdog, blasted the bill as a sop to the housing industry. “We’ve seen this before,” said Ryan Alexander, the group’s president. “Congress responds to a crisis by creating blunt instrument from whatever relevant legislative proposals have been waiting in the wings.”

The original bill directed $100 million to four community groups, including $25 million each for housing programs run by the National Council of La Raza and the Urban League. Republicans balked, saying the money was meant to help Democrats in an election year.

The language was stripped out before the bill came to the floor. But La Raza, the Urban League and scores of community organizations are still in line for housing-development money, plus $230 million for the remainder of this year and another $230 million for fiscal 2009 for mortgage counseling.

“It’s a political-ally slush fund,” said Rep. Jeb Hensarling, (R., Texas), chairman of the conservative Republican Study Committee, which opposed the package.

“This is simply out of line. This is meant for Americans to be able to get affordable housing,” said Steven Adamske, a spokesman for Mr. Frank.

The fighting is a sign the brief bipartisanship of earlier this year is likely over as the congressional clock runs down. Republicans want to cast Democrats as ineffective leaders pushing a liberal agenda. House Democrats want to protect vulnerable members from taking difficult votes. The dynamic leaves little room for legislative work.

On the housing bill, Democrats didn’t allow Republicans to propose alternatives or offer amendments. Democrats plan equally tight control over a war-funding bill set for debate next week. In protest, Republicans spent much of the past few days forcing procedural votes that stalled action on the housing legislation — dilatory tactics that could be used next week, too.

The bill, if enacted, also overhauls regulation of Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, and modernizes the FHA. It would also shield mortgage servicers from lawsuits when they modify the terms of a borrower’s mortgage, and add an additional standard-property-tax deduction of up to $700.

The House passed a separate bill that would provide states up to $15 billion to buy, refurbish and then sell or rent foreclosed homes, ignoring another White House veto threat.

–Sarah Lueck and Louise Radnofsky contributed to this article.

The White House and Treasury say “No!” House Financial Services Committee Chairman Barney Frank and other House Democrats, with the quiet backing of Federal Reserve Chairman Ben Bernanke, say “Yes!”

Of the 80 million houses in the U.S., about 55 million have mortgages. Of those, four million are behind on payments. Foreclosure proceedings were begun on about 1.5 million homes last year, up more than 50% from 2006. This year will be worse. The Treasury, according to presentations its officials have made recently, predicts house prices could fall another 10% to 15% before touching bottom.

Moody’s Economy.com estimates that one in roughly 12 American families with mortgages — four million in all — already owe more than the current value of their homes. They are said to be “underwater.” The firm predicts that by early 2009 nearly one in four, or 12 million, homeowners will be underwater. Most will continue to pay mortgages on time. Many won’t, and are at risk of losing their homes.

Lenders, we’re told repeatedly, prefer to avoid foreclosure if possible. Better to cut a deal than end up with an empty, decaying house. “If a foreclosure is preventable…the economic case for trying to avoid foreclosure is strong,” Mr. Bernanke said this week. And not just for borrower and lender: “Clusters of foreclosures can destabilize communities, reduce the property values of nearby homes and lower municipal tax revenues,” he said. And that could depress housing prices, which could hurt the economy and the stability of the financial system, he added. On that much, Mr. Frank and Treasury Secretary Henry Paulson agree.

In ordinary times, a lender shouldn’t need prodding from the government to do what’s in its self-interest. But these aren’t ordinary times. The drop in home prices is pervasive, mortgage markets messy and complexities caused by turning mortgages into securities many. No one in Washington wants to help the “speculators” who bought homes they don’t live in or those who lent to them. And there’s broad agreement that those who bought more house than they’ll ever be able to afford are going to lose out. The debate revolves around the “preventable foreclosures.”

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The Treasury’s approach is to cajole and prod mortgage servicers to cut interest rates or extend repayment times. It says nearly 400,000 mortgages have been modified since July. Messrs. Frank and Bernanke say that’s not enough.

Mr. Frank would offer lenders and eligible borrowers a deal: If the lender agrees to cut the debt so the homeowner owes no more than 90% of the house’s current value, and the Federal Housing Administration (or an outfit to whom it outsources this) determines the homeowner can afford a new loan, then the lender gets rid of the mortgage and the FHA insures a new mortgage for the remaining balance.

The lender takes a hit, but gets rid of the risk that house prices will keep falling or the borrower will default on a new loan; the government picks up that risk. To create a cushion for the FHA, the lender has to chip in another 5% of the property’s current value. The homeowner has to surrender some profits, if any, to the government when the house is sold.

The White House condemns this as a “bailout” and says it won’t work. As the Treasury argued in a recent PowerPoint presentation: “Homeowners who can afford their mortgage but walk away because they are underwater are merely speculators.” (It’s a bit jarring to hear the Treasury vilifying people who are acting in their economic self-interest.) But if not for the widespread decline in house prices — “a relatively novel phenomenon,” Mr. Bernanke labels it — and the proliferation of no-money-down mortgages made with the acquiescence of regulators, these homeowners wouldn’t be underwater.

Despite the restrictions, the plan could allow some homeowners to get a deal they don’t deserve; that’s the unfortunate byproduct of any rescue. But the Treasury and Fed surrendered the let-the-market-work-it-out high ground when they agreed to risk nearly $30 billion of taxpayer money to shield Bear Stearns, its creditors and counterparties from losses.

This scheme might not work. Mr. Frank has crafted rules aimed at preventing those who can easily afford loans and those who haven’t a prayer of paying a new loan from participating, leading the Congressional Budget Office to predict only 500,000 mortgages would be refinanced this way. Some administration experts suspect that’s high; they doubt many lenders will play ball. In that event, it won’t cost taxpayers much.

So, perhaps it’s best considered a prudent experiment for coping with a bad situation that might get worse: Create a mechanism now so the bugs are worked out, in case home prices plunge more than anticipated and push millions more homeowners underwater.

Write to David Wessel at capital@wsj.com

By JAMES R. HAGERTY
May 8, 2008; Page D4

See more data on housing inventory

The supply of homes available for sale in major metropolitan areas edged higher in April, new data show.

Total listings of homes in 29 metro areas at the end of April increased 1.3% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate-brokerage firm based in Emeryville, Calif. The data cover all listings of single-family homes, condos and town houses on local multiple-listing services in those 29 areas, where Zip operates.

Listings normally increase in April as sellers rush to catch the spring shopping season, the busiest period of the year for housing sales.

The inventory was up about 6% from April 2007 in the 18 metro areas for which Zip has comparable year-earlier data.

Though the inventory of unsold houses is no longer growing rapidly, it remains high in most of the country, and prices have been falling. Mortgage-investor Fannie Mae this week estimated the average home price will decline 7% to 9% this year, compared with an earlier projection of 5% to 7%.

There are signs lower prices — particularly on foreclosed homes — are starting to attract buyers in some markets, says Patrick Lashinsky, chief executive of ZipRealty. He said lenders have become more responsive to offers for homes facing foreclosure or already acquired by banks.

Home sales are generally weak, but there are a few signs of possible recovery. The Greater Las Vegas Association of Realtors reported this week that sales of single-family homes in southern Nevada totaled 1,794 in April, up 30% from the depressed year-earlier total. The median price was down 23% to about $236,000.

Write to James R. Hagerty at bob.hagerty@wsj.com

By SHEREE R. CURRY
April 4, 2008; Page B12

Home prices continue to decline to record lows, according to the Case/Shiller Home Price Index, but the number of units selling is rising, says the National Association of Realtors.

Here are three high-end homes for sale.

Place/Price: Northville, Mich. / $1.7 million

Taxes: $18,000

Property: 4 bedrooms, 5 ½ baths, 7,000 square feet

Description: The brick home has a first-floor master suite with a bay window, window seat, walk-in closet and a two-person shower. The lower-level has a built-in bar and home theater and 2,000-bottle-capacity wine cellar.

Notable: Prices in the Detroit area dropped 15.1% from a year prior and are down 3% from January to February. Tampa had a similar decline of 15% from a year ago and 2.7% from January to February.

Place/Price: Scottsdale, Ariz. / $1.85 million

Taxes: $7,000

Property: 5 bedrooms, 4 1/2 baths, 4,922 square feet

Description: This three-car garage home has exposed adobe brick walls and there are three fireplaces. The master suite has a beverage refrigerator and a coffee bar. There is a heated pool and spa, and a covered patio.

Notable: The Index shows that 10 of the tracked markets posted double-digit price declines. The Phoenix area, with an 18.2% decline came in second behind Miami and Las Vegas, which tied for first with a 19.3% decline.

Place/Price: Los Angeles, Calif. / $4.3 million

Taxes: $53,687

Property: 4 bedrooms, 5 ½ baths in, 5,000 square feet

Description: This home with an open floor plan has a formal living room. There is a gym and a media room. There is a wall of glass, a swimming pool and a guest house that can be used as an office.

Notable: Los Angeles had a 16.5% price decline, which is comparable to San Diego’s 16.7% decline. Charlotte is the only tracked metro area that did not show a decline. Prices there increased a modest 1.8%.

Note: The property taxes are estimates. Sources: standardandpoors.com, realtor.org, tuscanyreserve.net, fhpbuilders.com, architectural-estates.com

By JUNE FLETCHER
May 8, 2008 10:46 p.m.

Q: Where can I find a real estate agent who focuses on selling U.S. properties — specifically condos around Millennium Park in Chicago — to foreign buyers?

–Ellis Levin, Chicago

A: Good news in a bad economy: Selling real estate is still one job that can’t be outsourced overseas. That means you’ll have to rely on local talent — and not foreign real estate agents — to reach buyers overseas.

Your instinct to look overseas is a good one, for several reasons:

• Despite its recent rally, the dollar is at its lowest point in a dozen years against the yen, and remains weak against the pound, the euro and most currencies of developed countries. Three out of 10 foreign buyers who bought in the United States in the 12-month period ending in April came from Europe, according to the National Association of Realtors.

• News of foreclosures, short sales and falling prices has spread around the globe, attracting foreign investors looking for deals.

• Urban real estate in major U.S. cities costs much less than it does in many other industrialized nations. According to the Global Property Guide, an apartment in London costs $28,355 per square meter ($2,637 per square foot), and Paris $15,670 per square meter ($1,457 per square foot). By comparison, according to Chicagocondosonline.com, the median sales price in 2007 for a Chicago condo was only $294 per square foot, which comes to $3,165 per square meter.

Although it wouldn’t be appropriate for me to recommend one real estate agent over another, you can find out how plugged in they are with foreign buyers by visiting their Web sites. Check to see if they speak a foreign language or two, and have listings in American neighborhoods with heavy concentrations of foreign buyers. When you schedule interviews with listing agents, ask them to bring copies of ads they’ve run in foreign publications, as well as community newspapers or other publications in the U.S. that have strong ethnic connections.

But even if they don’t do these things, it’s likely that they still have access to foreign home shoppers through their brokerages. All major real estate brokerages — and many regional ones as well — have international divisions or are part of global consortiums these days. One avenue available to all members of the National Association of Realtors is the International Consortium of Real Estate Associations, a nine-year-old group that sets standards for, and facilitates, transnational transactions. But to get your property listed on its global Web site, Worldproperties.com, Realtors must register with the group. Ask every agent you interview if he or she has done so.

By JAMES R. HAGERTY
May 10, 2008; Page A2

Fannie Mae is preparing to introduce by midyear a program of refinancing mortgages for people who owe more than the current value of their homes, a situation known as being “underwater.”

The plan is the latest twist in efforts to contain the surge in foreclosures on homes in much of the U.S. It differs from a bill approved by the House on Thursday that would authorize the Federal Housing Administration to insure loans for distressed borrowers only after the lender has written down the principal — something many lenders are reluctant to do. Fannie’s refinance plan would result in new loans of equivalent size, leaving the borrower underwater but giving him or her a lower monthly payment or at least a fixed rate.

Officials of Fannie, a government-sponsored provider of funding for home loans, said the new program is limited to people who have kept up on their payments so far and whose loans are owned or guaranteed by the company. Normally, it is impossible for underwater borrowers to qualify for refinancing because the collateral isn’t worth enough to support new loans that would let them fully pay off the old ones. But Fannie officials say in some cases it can make sense to refinance such people if the new loan will reduce their interest rate or let them lock into a fixed rate rather than risking future upward adjustments.

“We’re saying to the consumer, ‘You’re not trapped any more,’” said Jeff Hayward, a senior vice president at Fannie.

The program will allow refinancing loans of as much as 120% of the property value. Fannie officials project that 150,000 households could qualify for such refinancings.

Rather than reducing the principal due on the loan and taking an immediate loss, Fannie is betting that these people will be able to keep up on their new loans and prices will recover.

The National Association of Home Builders and the National Association of Realtors praised the program, and many politicians have been pushing Fannie and rival Freddie Mac to do more to help borrowers.

The companies want to avoid immediate loan losses that would further erode their meager capital cushions.

Some Voters Oppose
Having to Bail Out
Homeowners at Risk

By SUDEEP REDDY and ELIZABETH HOLMES
May 12, 2008; Page A3

Democrats may be risking a backlash at the polls in November by pushing hard to use taxpayer money to rescue homeowners who can no longer afford their mortgages in the face of stiff resistance from President Bush and many other Republicans.

The Democrats in Congress and the party’s presidential candidates frame the issue as doing at least as much for beleaguered homeowners as the government is doing for Wall Street. The White house and most House Republicans counter this amounts to using taxpayer money to reward bad behavior.

The Republican protests are striking a chord with some Americans who are paying their mortgages on time or who didn’t buy more house than they can afford.

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• www.federalreserve.gov/pubs/foreclosure/default.htm

• www.hopenow.com or call 1.888.995.HOPE

President Bush is vowing to veto a bill the House passed last week — with the support of 39 Republicans, about a fifth of their ranks — that would, among other things, allow certain homeowners to refinance loans through a government agency if their lenders agree to take less than the full amount borrowed.

The Senate is expected to take up the issue this week. Although Sen. John McCain, the Republican presidential candidate, advocates government-backed mortgages for some homeowners, he laces his campaign rhetoric with a “no bailouts” mantra.

The public is split. “If you’re the Secretary of Bailouts, and people come in and show you that they’re worthy of being helped out, everybody will have a story,” says Robert Krance, 64 years old, a Houston physician and McCain backer. “I don’t know how you can create a reasonable, enforceable method for deciding who should be helped.”

A hands-off approach by the government is “the right thing to do,” agrees Jeff Cohu, a 40-year-old professor attending a McCain rally last week. “The market will readjust faster and better than the government could.”

A Gallup Poll in late March found that 56% of Americans favor government intervention to prevent people from losing their homes because they can’t pay their mortgages, while 42% oppose it. The partisan divide was sharp: 58% of Republicans opposed intervention; 71% of Democrats and 55% of independents supported the idea.

Even some voters who support a government rescue are uneasy about haste. “I don’t think we can just stay hands-off,” says Walt King, a mechanical engineer from Downers Grove, Ill. “The people who got sucked into this are not capable of making calculations about whether they could afford this.” But Mr. King, 62, who says he is likely to vote for Sen. Barack Obama, is wary of a rushed political response. “I don’t know what the answer is,” he said. “The election year is not a year to pray for objectivity.”

Democrats are tapping into the widespread belief that the banks are being treated better than ordinary Americans. Lucy Anguino-Perez, 76, interviewed at a rally at which Sen. Hillary Clinton reiterated her call to suspend foreclosures for a time, says, “Give the people a break.” The Griffith, Ind., retiree adds, “We’re the ones that are paying the taxes, and all these guys who are sitting up there on the first floor, the top floor, they’re the ones who are getting the benefit.”

At least some McCain supporters agree. Says Scott Downing, 39, a McCain supporter from Michigan: “If you can bail out banks for billons of dollars, you can set up a program on a family-by-family basis.”

But some Republican strategists say Democrats may misread the public. “There will be massive public opinion on the side of helping the single mom who got swindled,” says Republican consultant Todd Harris. “But at the same time, there will be massive voter retribution against any plan that is perceived to bail out greedy and unscrupulous speculators and mortgage companies.”

Keith Hennessey, a top economic-policy adviser to President Bush, says “gut-level public opinion” backs the White House. The reaction of people who are making mortgage payments on time, he says, is: “Hey, wait a second, why are you helping him when I’m making hard choices every single month to stay current on my mortgage?”

The line was drawn sharply in last week’s House debate. Rep. Tom Feeney (R., Fla.) said less than 1% of homeowners would get help while the rest “will pay the price of this bill.”

Rep Feeney said, “This bill is a bailout — from American taxpayers — of speculators and imprudent borrowers.” Among the winners, he said, are lenders who would otherwise lose the entire value of a loan and people who put no money down to get a home.

Rep. Barney Frank (D., Mass.), who wrote the legislation, and other Democratic lawmakers insisted the bill nicks both sides. Said Rep. Jim Marshall (D., Ga.), “The deals that the borrowers get are not particularly good. The deals that the lenders get are not particularly good…. In my view, it’s a bailout for the entire economy and all of these people that have been dragged into it.”

Austan Goolsbee, one of Sen. Obama’s economic advisers, says the campaign weighed the downsides of rewarding bad behavior against the economic harm risked by inaction. “That’s not a political calculation, that’s very much the economically valid thing to do,” he says. The issue, he added, is the threat that dropping home prices pose to the entire economy. Framed that way, Mr. Goolsbee said, voters are “much more amenable” to government intervention to “prevent something that’s outside of people’s control.”

Nearly all pending proposals purport to aid the deserving — usually defined as families who own their own homes and have a shot at paying a reduced mortgage — and shun speculators and those who lied on their loan applications. Sen. McCain made “a very conscious decision not to throw money at Wall Street or people flipping second homes,” said his economic adviser Douglas Holtz-Eakin. “You don’t want to reward bad behavior.”

Goldman Sachs’s Alec Phillips wrote in a note to clients: “Politicians may feel it is better to be safe than sorry. While many Republicans feel there is more political benefit to voting against a ‘bailout,’ there is a clear danger in blocking legislation that aims to stabilize the housing and mortgage markets when it seems clear that prices will continue to decline.”

–Matt Phillips and Nick Timiraos contributed to this article.