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It sounds too good to be true, and it just might be: 4 percent, 30-year, fixed-rate mortgage loans to buy or refinance houses, guaranteed by Uncle Sam.
What homeowner in Nevada wouldn’t sign up? Thirty-year fixed-rate loans are going for just over 5 percent, an excellent rate by modern standards.
The 4 percent loans are among several housing-related provisions Sen. John Ensign and Republican leaders in the U.S. Senate are developing as alternatives to President Barack Obama’s nearly $900 billion economic recovery plan now before them.
Republican senators are hoping to put a more lasting imprint on the bill than their House colleagues were able to achieve — the House bill passed this week without a single Republican vote. Republicans complain the bill is bloated with excessive spending that will do little to achieve its goal of stimulating the economy.
Adding a more robust housing component is one way to attract attention, especially in Nevada, which has steadily led the nation in rate of foreclosures.
Nationwide, 2.3 million homes were in foreclosure in 2008, with more expected this year.
“How many of you would like a 4 percent mortgage?” Ensign asked this week in floating the plan. “You have to fix housing; otherwise I don’t think the economy is going to recover from this.”
No details about a 4 percent program were available Thursday. Presumably, borrowers would be required to meet stringent loan requirements of the kind the lending industry reinstated in the aftermath of the meltdown from subprime mortgages, which required little documentation of income or other evidence of ability to pay.
But more homeowners can meet tougher loan standards if rates drop from 5 percent to 4 percent.
Ensign said Republicans are considering a three-pronged housing strategy that includes the government-backed low-rate mortgages, a $15,000 tax credit for homebuyers and a yet-to-be outlined program to help homeowners whose mortgages are upside-down, which means the home’s value is less than the loan balance. Home values in Las Vegas are now at pre-bubble 2003 levels.
The urgency in addressing the mortgage mess is something Democrats regard as an about-face for Republicans. Many in the party dragged their feet in the spring and summer as Congress was trying to pass a bill to bring relief to homeowners as housing prices began their free fall.
Ensign himself stalled the bill for weeks as he tried to attach a provision for tax credits for renewable energy developers. At one point during the standoff, Senate Majority Leader Harry Reid said thousands of homes a day were falling into foreclosure while Senate Republicans held up debate.
Ensign ultimately voted against the bill, the only member of the Nevada delegation in Washington to do so. (He had supported an earlier version.)
Ensign’s office at the time said most of the calls from constituents were from those opposing the bill. In voting no, Ensign said at the time: “This bill, I believe, is dumping the burden onto the taxpayer and bailing out a lot of irresponsible lenders.”
This week, Ensign said things have changed.
“We’re in a different time,” he said. The economic problems are real and the mortgage mess is creating a downward spiral that is pushing Republicans to take steps they normally would not consider. “A lot of us would not like to have nearly the government involvement even close to what it is right now,” Ensign said.
Though Obama’s American Recovery and Reinvestment Act includes some aid for homeowners, broader solutions are being considered outside the debate over the stimulus bill.
A separate House-passed bill pushes the Treasury Department to provide mortgage relief by using up to $100 billion from the $700 billion Wall Street rescue fund. The new Treasury Secretary, Timothy Geithner, signaled Wednesday he was working on a plan.
Washington’s main response to the mortgage crisis so far has been last year’s landmark housing bill, which created the Hope for Homeowners program. The program was expected to help 400,000 homeowners work with their banks to write down loans to more affordable levels.
The program has fallen short. A report to Congress last month said only 300 loans were being reworked. Congress and the Bush administration blamed each other for the shortcomings, with experts saying the program stumbled for a variety of reasons as lenders were reluctant to take losses and borrowers were unable to meet eligibility requirements.
Bert Ely, a banking consultant watching the debate, said ideas for a government-run program to offer low, fixed-rate mortgages surfaced late last year. But interest in it waned once the costs were considered.
Republicans were not able to provide a cost estimate Thursday.
“When you start getting into the numbers, you start to realize it would be very difficult to execute and could be quite expensive,” Ely said. “You’re talking about millions and millions of mortgages.”
Democrats are willing to consider the Republican proposals, a spokesman for Reid said.
However, Democrats add that the bill does have housing provisions, including a $7,500 tax credit for those buying homes.
In the House, Nevada’s lawmakers tried to boost the housing provisions in the stimulus package that passed Wednesday evening.
Republican Rep. Dean Heller offered an amendment in the Ways and Means Committee that would have enhanced the $7,500 tax credit for homebuyers — much the way the Senate Republicans are trying now to raise it to $15,000.
Heller won support from Rep. Shelley Berkley, the only Democrat to support it, but the amendment died in committee on a party line vote.
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