The two leaders of the National Governors Association today urged Congress and the White House to enact quickly housing-stimulus legislation so that states can rebound from decreasing tax revenue and increasing crime and neighborhood blight due to a record foreclosure rate. Minnesota Gov. Tim Pawlenty and Pennsylvania Gov. Ed Rendell urged the federal government to take a greater role to stabilize the housing market, while differing on their approaches. Pawlenty, chairman of the association, noted that most governors are attempting to deal with the issue because 47 states in 2007 had a foreclosure rate that was at least 20 percent higher than 2006. "I find very little public resistance to using government money to help people who unwittingly got trapped in this," said Rendell, vice chairman, after appearing at an NGA summit on the crisis. "We're not looking to help people who took risks to buy McMansions."
While many states, notably Ohio and California, have taken steps to rein in abusive lending practices, Rendell said the federal government plays the crucial role in providing funding to keep homeowners in their homes and stabilize housing prices. Legislation in both chambers would provide assistance to state and local communities. A package sponsored by Senate Banking Chairman Christopher Dodd would provide $4 billion for communities to buy and rehabilitate foreclosed properties and $150 million for counseling troubled borrowers to help them stay in their residences. A House-passed measure by Rep. Maxine Waters, D-Calif., is more generous, providing $15 billion in grants and low-cost loans to states to buy foreclosed properties to help stabilize local tax bases and house needy families. The White House opposes such efforts and has issued a veto threat against the Waters bill. Those items will be in the mix as the House and Senate attempt to work out a compromise housing package before the Fourth of July recess.
Rendell, a Democrat, said he supports a measure by House Financial Services Chairman Barney Frank that would allow the Federal Housing Administration to insure up to $300 billion in new fixed-rate mortgages for at-risk subprime borrowers, providing that their lenders voluntarily write down their current notes to below-market value. Dodd has a similar measure. Rendell said he would like to see two modifications to the Frank bill, which passed the House this month: language to ensure that those who go through the process would not suffer any downgrade to their credit scores, and an increase in the FHA guarantee under the proposal. In its current version, the Frank bill insures the new loan to only 90 percent of the property's current value, while Rendell said he would like to see the rate raised up to 97 percent to get more participation. "It would more likely produce the results we are looking for. You are asking lenders to take a hit and they got to get that in return," he said. Pawlenty, a Republican who has been mentioned as a possible vice presidential pick, said he would like Frank to reach out to get more bipartisan support, but he did not go into specifics of the bill. Rendell agreed, adding, "We need action here, [even] if that means compromising some tenets of the Frank program."
This article appears in the May 31, 2008 edition of National Journal Daily PM Update.