Congress Talks: Bailout Plan Needs Homeowner Provisions

The emergency federal bailout plan has been drafted. The proposal involves buying up mortgage-related assets from failing financial institutions; but are homeowners going to get some help, too?

"When you're a Jet, you're a Jet all the way from your first cigarette to your last dyin' day." The heated rivalry between the Jets and the Sharks of West Side Story is nothing compared to the battle between Republicans and Democrats on the federal bailout plan. And amid all that positioning and politicking, America's homeowners are asking to be heard, too.

On September 20, the U.S. Treasury approached Congress for permission to buy $700 billion of mortgage-related securities. Those securities are wreaking havoc on the U.S. financial system, because skyrocketing mortgage default rates have made them unsalable. Already, Fannie Mae, Freddie Mac, AIG, Lehman Brothers, and Washington Mutual have essentially collapsed. The bailout plan-called the Emergency Economic Stabilization Act of 2008 (EESA)-is the government's attempt to shore things up before our whole financial system falls apart.

Remembering Main Street when saving Wall Street

As the bailout details were hammered out, some politicians were particularly vocal about addressing the foreclosure crisis in the legislation. There was concern that homeowners' needs would get lost in the shuffle, as lawmakers struggled to create a workable solution. Senators Charles Schumer and Hillary Clinton were among those who continued to press for homeowner stimulus and mortgage aid. During a congressional hearing, Schumer said he was "convinced that judicial loan modifications...are an essential step that we must consider." Clinton, who rallied for the return of a Depression-era refinancing program, argued that "if we do not take action to address the crisis facing borrowers, we'll never solve the crisis facing lenders."

Round one goes to the homeowner

Schumer and Clinton made their point. The version of the EESA that was sent to the House on September 29 did include mortgage aid provisions. It came in the form of a requirement that the Treasury modify troubled mortgage loans wherever possible. The legislation also directs other federal agencies involved in mortgage lending to rework their at-risk loans. And finally, the EESA widens the eligibility requirements for the "HOPE for Homeowners" program. HOPE for Homeowners is an FHA-based refinancing program that targets borrowers who have loans that they can't afford. Almost as a reassurance, the official summary of the EESA twice states that the intention is to help "American families keep their homes."

These provisions are tucked into a complex plan to buy up hundreds of billions of dollars worth of mortgage-related securities. Lawmakers, fearing an impending global financial crisis, have been forced to move quickly to come to an agreement on the package. Thankfully, Republicans and Democrats did eventually join forces on the deal, just as the Jets and the Sharks dropped their feud at the end. Supporters say the plan will add liquidity to the credit markets, stabilize the financial system, and protect the interests of taxpayers and homeowners.