WASHINGTON: Amid new signs that the housing slump is worsening, Senate Democrats are saying that hundreds of millions of dollars of new federal aid may be needed to assist homeowners at risk of foreclosure.
The call Wednesday for federal involvement from Charles Shumer, a Democrat from New York and chairman of the Joint Economic Committee, came on the same day the National Association of Realtors issued a forecast that the median price for existing homes would 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 might be needed.
"We've heard one heartbreaking story after another of borrowers with limited incomes being sold mortgages they could not afford," Senator Sherrod Brown, a Democrat from Ohio, said at a briefing on Capitol Hill.
His words were backed up by the real estate 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 the troubled market for loans given to people with shaky credit are to blame, the group said.
Across town, a nonprofit advocacy group from Boston, the Neighborhood Assistance Corporation of America, called on Wall Street to help homeowners restructure their mortgage loans.
The NAR also revised downward its estimate of total sales this year of existing homes to a decline of 2.2 percent, compared to an earlier forecast of a 0.9 percent decline. New home sales are expected to fall 14.2 percent compared to a previous estimate of a 10.4 percent slide, the NAR said.
Edward Leamer, an economist and the director of Anderson Forecast at the University of California, Los Angeles, says that estimate is too conservative.
He projects 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 high-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."Senator Christopher Dodd, a Democrat from Connecticut, said that 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.
In Detroit, one of every 21 mortgages was foreclosed last year, according to the JEC, which used RealtyTrac's foreclosure database.
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.
"We'd like to do something very quickly," Schumer said.
"These statistics are new and they're startling."
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. Adovcacy 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. Last week, civil rights groups called for a six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders could face lawsuits if they do not help borrowers. The mortgage industry says that lenders are already working to help distressed borrowers. The Boston-based Neighborhood Assistance Corporation of America announced plans Wednesday in Washington to work with Bank of America and Citigroup on refinancing troubled loans.NACA said that 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. "We want to send out hope to the victims of the subprime lending crisis," said Bruce Marks, NACA's chief executive. "There is hope if you are about to lose your house." Citibank in 2003 pledged $3 billion worth of financing over 10 years to NACA for affordable housing, said Mark Rodgers, a Citibank spokesman, adding that the bank had similar agreements with other community groups. Greg Barnard, a spokesman for Bank of America, said that the NACA plan would use previously committed funds from the bank. Marks said the group aims to convince other big lenders and Wall Street investors to help consumers avoid foreclosures and obtain loans that they can afford. "The real question is how big" the housing market's drop is going to be, Leamer said.