September 21, 2007 (LPAC)--Legislation to pump hundreds of billions in new liquidity into the collapsing U.S. mortgage market, through three different government-sponsored mortgage enterprises and agencies, passed the House of Representatives this week and was essentially endorsed by President Bush and administration representatives. House Financial Services Chairman Barney Frank (D-MA), at a hearing Sept. 20 after passing the bill, urged immediate Senate passage of a companion bill introduced Sept. 19 by Sen. Christopher Dodd (D-CT), and so did Treasury Secretary Henry Paulson and HUD Secretary Alphonso Jackson, testifying at Frank's hearing. Congressmen and White House representatives alike used the hearing to proclaim that this legislation was what was required to meet the mortgage crisis. All spoke of the bank credit crisis which exploded in August--as the U.S. mortgage bubble melted down--as an event in the past, coming under control, and not threatening the U.S. economy.
"They're going to have to eat those words, and soon," commented Lyndon LaRouche, whose movement has mobilized to get Congress, instead, to legislate a national halt to the growing "tsunami" of home foreclosures, which will otherwise claim between 2.5 million and 5 million homes by the end of 2008. LaRouche's legislative principles are called the Homeowners and Bank Protection Act of 2007; state legislators in a dozen foreclosure-swamped states are calling on Congress to take that action.
The House-passed legislation, denying the reality of the systemic financial crisis involved, will fail to stop the foreclosure wave. It would increase the capitalization of Fannie Mae and Freddie Mac, the two big government-sponsored mortgage companies, by 10%--about $150 billion--which Fannie and Freddie would raise on the capital markets and spend buying stricken subprime and jumbo ARM mortgages they are now barred from purchasing. As recommended by President Bush, the legislation would also harness the Federal Housing Administration to this liquidity-pumping job, raising the size of mortgages FHA can insure as high as $700,000, no longer requiring any home down payment for such government insurance, and eliminating the "insult to injury" taxes which foreclosed homeowners have to pay on "forgiveness" of their mortgage debt.
In a crisis in which there is a self-feeding fall in home prices underway--the collapse of an immense bubble--afflicting homeowners with "negative equity" across the board, pumping in "refinancing" liquidity does not stop the foreclosure wave, as the failures of state programs like Ohio's have already shown. Whatever buying tens of billions of toxic mortgage paper may do to the finances of Fannie Mae and Freddie Mac, it will not halt even the 100-200,000 foreclosures claimed, let alone 5 million. Either Fannie and Freddie will abandon all standards and agree to buy mortgages at their near-peak "values" even as their actual values plunge; or, they will maintain standards and most homeowners facing foreclosure will not be helped.
Local elected officials, experiencing the worsening foreclosures crisis first-hand, want Congress to join the states in banning foreclosures nationwide.
