As Congressional Democrats and the Bush Administration wrangle over the need for aid to homeowners in the Wall Street bailout plan, both sides appear to have forgotten that Congress approved a $300 billion mortgage rescue package in late July.
“We already have a rescue package for homeowners,” says Nariman Behravesh, chief economist at Global Insight, sounding a bit dumbfounded by the development. “Things get so weird in a presidential election year.”
Among the provisions of the Housing And Economic Recovery Act of 2008 is the Hope for Homeowners program, which was designed to provide up to $300 billion for the refinancing of about 400,000 mortgages whose default might lead to foreclosure. The program starts Oct. 1 and runs for three years.
Expensive, too. Put together, the Hope for Homeowners and Wall Street bailout total $1 trillion.
What’s also odd about the current debate is that the Hope for Homeowners program, closely resembles the Depression-era Home Owners' Loan Corp, which Congressional leaders have cited as a model for today’s problem.
On Monday, Sen. Hillary Clinton, for instance, proposed the idea, telling CNBC that House Financial Services Committee Chairman Barney Frank shares her view “that we need some kind of an entity like the old HOLC, the Homeowners Loan Corporation. To be prepared we should start working on the legislation now to try to get something like that up and going….”
Alex Pollock, a former president of the Federal Home Loan Bank of Chicago and a resident fellow at the American Enterprise Institute, who consulted on the Hope program for the Senate Banking Committee, calls it “direct descendent” of the HOLC.
Andrew Jakabovics of the Center for American Progress says the new program “borrows elements” from HOLC but stresses it is different because “homeowners don't have any opportunity to apply.”
Technically, that is true, according to scholars, but to a lesser extent the HOLC also assisted lenders in refinancing troubled loans.
In her interview with CNBC Monday and in comments to other news organizations, Clinton did not refer to the Home program in reacting to the Treasury plan, but did say that “part of what needs to go into the proposal is the authority for mortgage modifications.”
Watch Clinton's interview on CNBC at left.
Based on that interview and comments made to to other news organizations Monday, it was not entiirely clear that Clinton was proposing a different, additional programfor loan modification.
When CNBC.com sought clarification on that point Tuesday, her office said the senator was unavailable and referred to a lengthy statement on the economic crisis on the senator's Website.
The statements refers to her calls for "creating a new version of the Home Owners’ Loan Corporation (HOLC) to remove bad mortgage debt from the market and restore confidence," and her introduction of "the Mortgage Refinancing Initiative of 2008, which would provide an opportunity for at-risk households to refinance unworkable mortgages."
Pollock says the $300 billion allocated is enough to “make a meaningful start," and is equivalent to 15 percent of the $2 trillion in existing subprime and Alt-A mortgage debt.
More broadly, it’s odd that the plan hasn’t figured much, if at all, into the overall debate.
You would think Paulson, who once again Tuesday called the housing correction “the root cause” of the credit crisis, would have reminded Congress of the government's commitment in deflecting criticism about the shortcomings of the Bush administration’s plan.
At the same time, you would think that Congressional Democrats and others at the first of two public hearings would have called for the need to supplement the Hope program, amend it or tie it in some way to the current crisis legislation.
(Fed Chairman Ben Bernanke, oddly enough, was the one person who mentioned the program by name—in an answer to a question about foreclosure protection—and that was very late in the day.
The near vaccum of sorts begs the question as to whether the program and its broader legislative parent have been forgotten in the heat of the crisis.
“It’s possible," says Jackabovics. “Because it isn't up and running now, it’s kind of orphaned."