WASHINGTON – Amid new signs that the housing slump is worsening, key Senate Democrats said Wednesday that hundreds of millions of dollars of new federal aid may be needed to assist homeowners at risk of foreclosure.
The call for federal involvement from Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee, came on the same day the National Association of Realtors forecast that the median price for existing homes will decline for the first time since 1968 as a sales slump worsens.
“We will be proposing significant amounts of dollars,” Schumer told reporters after being asked if a large federal bailout may be needed.
Across town, meanwhile, an activist nonprofit group from Boston called on Wall Street to help homeowners restructure their mortgage loans.
“We’ve heard one heartbreaking story after another of borrowers with limited incomes being sold mortgages they could not afford,” Sen. Sherrod Brown, D-Ohio, said at a briefing on Capitol Hill.
His words were backed up by the realty group’s prediction of a 0.7 percent decline to $220,300 this year in the median sale price for existing homes, down from $221,900 last year. Tighter lending standards and the continued fallout from a troubled market for loans given to people with shaky credit are to blame, the group said.
The NAR also revised downward its estimate of total sales this year of existing homes to a decline of 2.2 percent, compared with an earlier forecast of a 0.9 percent decline. New-home sales are expected to fall 14.2 percent compared with a previous estimate of a 10.4 percent slide, the NAR said.
Economist Edward Leamer, director of the University of California, Los Angeles’ Anderson Forecast, says that estimate is too conservative.
He predicts a decline in the price of existing homes of between 2 percent and 3 percent this year and expects that trend to continue for two to three more years. With low-interest rate mortgages for people with poor credit no longer available, Leamer said, “you’re eliminating 20 to 30 percent of the demand for homes.”
Sen. Christopher Dodd, D-Conn, said he would call for a summit on Capitol Hill soon “to try to work out a process for providing relief to homeowners.”
With 1.8 million adjustable-rate mortgages resetting to higher rates this year and next, foreclosures are sure to continue rising, the 32-page report from the Joint Economic Committee said. Areas hardest hit by foreclosures include Atlanta, Indianapolis, Denver, Dallas and Detroit, the report said.
The Federal Housing Administration could be revamped to refinance mortgages in danger of default, the JEC’s report said, citing a proposal by a Harvard professor under which the housing agency could oversee a “rescue fund” that would restructure failed or failing mortgages. Aid could also be provided to community organizations or banks that work with borrowers to refinance loans.
Lawmakers also are considering strengthening federal regulation of mortgages, imposing a stricter ban on predatory lending practices and requiring lenders to establish a borrower’s ability to pay back a mortgage loan through the life of the loan, not just for two or three years.
Activist and community groups are stepping up efforts to aid homeowners affected by the housing market’s woes. They argue that banks and mortgage brokers – not borrowers – bear most of the blame for the industry’s problems.
Rising delinquencies and defaults among borrowers have resulted in more than two dozen so-called subprime lenders going out of business, moving into bankruptcy protection or putting themselves up for sale.
The Boston-based Neighborhood Assistance Corporation of America announced plans Wednesday in Washington to work with Bank of America Corp. and Citigroup Inc. on refinancing troubled loans. NACA said existing funds from those banks pledged through federal regulations requiring loans for low- to moderate-income home buyers could be used to help 7,000 to 10,000 homeowners with high-interest rate mortgages refinance at lower rates.
Citibank in 2003 pledged $3 billion worth of financing over 10 years to NACA for affordable housing, said Citibank spokesman Mark Rodgers, adding that the bank has similar agreements with other community groups.
Greg Barnard, a spokesman for Bank of America, said the NACA plan would use previously committed dollars from the bank.
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