Barney Frank, the powerful chairman of the financial services committee, on Thursday unveiled details of legislation to stem the wave of US home foreclosures through an expansion of the Federal Housing Administration.
[House Financial Services Committee Chairman Barney Frank, today released the following statement regarding the reference to a Congressional Budget Office (CBO) cost estimate in the summary of H.R.5830:
“In our efforts to minimize costs to the government, we consulted with the Congressional Budget Office regarding aspects of program design. The cost estimates contained in the summary were based in part on those conversations, but they were ours and should not have been attributed to CBO.”]
A similar bill is being considered by the Senate. While the government could make money depending on the performance of the new loans, it could also incur losses of between 1 and 2 per cent of the total amount, the CBO told lawmakers.
In an interview with the Financial Times this week, Chris Dodd, chairman of the Senate banking committee, conceded that “there is obviously some risk” to taxpayers, but insisted the legislation was necessary to set a floor for house prices and avert contagion across US financial markets and the economy.
Mr Dodd said a compromise between the Bush administration and Congress needed to be reached “fairly quickly if it is going to meaningful”.
The plan proposed by congressional Democrats would allow struggling borrowers to refinance their mortgages based on a lower value for their homes. While the lender would forgive a chunk of mortgage value, it would in return share in the benefits of any appreciation of the home, as would the FHA, which would back the refinanced mortgage.
According to details released on Thursday by Mr Frank’s office, the plan would run for two years and apply only to primary residences. The shape of the bill could change as it moves through the financial services committee in two sessions next week.
In testimony in recent weeks by Brian Montgomery, federal housing commissioner, the Bush administration has signalled its opposition to many aspects of the legislation being proposed by Mr Frank and Mr Dodd.
On Thursday, President George W. Bush said he would work with lawmakers on a bill that would “actually help people”. He added: ”I will take a dim view of legislation that will make it harder for the economy to correct.