Democrats crafting a broad government housing rescue are under pressure from liberal groups to push more aggressive measures that would force lenders to let homeowners facing foreclosure restructure their mortgages.
A growing chorus of labor, civil rights and consumer advocates say Democrats' plans won't do enough to prod loan servicers to work with strapped borrowers rather than letting them slip into default. They are leaning on House Democratic leaders to resurrect a proposal — dropped before the Senate passed a housing measure last week — that would allow bankruptcy judges to lower mortgage rates or principal for bankrupt homeowners.
"It's going to be hard for us to support any housing bill that doesn't include a bankruptcy provision, because in the absence of that, I see no prospect for meaningful relief of those homeowners facing significant crisis," said Wade Henderson, the president of the Leadership Conference on Civil Rights.
Proposals by Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, and Sen. Chris Dodd, D-Conn., the Senate Banking Committee chairman, would allow 1 million or more struggling homeowners to trade subprime mortgages they can no longer afford for fixed-rate loans backed by the government. But the plans, in which the Federal Housing Administration would insure between $300 billion and $400 billion in refinanced loans, are voluntary; servicers would first have to agree to take a loss on the existing mortgages.
Liberal and consumer groups say those proposals are essentially toothless. They are also pressing for legislation by Rep. Maxine Waters, D-Calif., that would require loan servicers to try modifying monthly payments or other measures to help borrowers stay in their homes before resorting to foreclosure. Waters boasts that the mortgage industry considers the measure "a nightmare."
"We cannot rely on the very industry that created the crisis to dictate the terms of how we get out of it," said Josh Nassar of the Center for Responsible Lending, a nonpartisan research and policy organization.
In recent days, activists say they have put aides to Frank, House Speaker Nancy Pelosi, D-Calif., and other leaders on notice that they are prepared to withhold their support for any housing plan that omits the bankruptcy provision.
Their opposition could put Pelosi in a difficult bind as she prepares for a House vote in early May on a housing rescue package.
Republicans and many conservative Blue Dog Democrats are already wary of Frank's bill, fearing that it amounts to a costly government bailout, and adding measures to compel the mortgage industry to work with borrowers could cost the measure vital votes.
On the other hand, failing to include such provisions would enrage Democrats' base, particularly blacks and Latinos who have been hardest-hit by foreclosures. Henderson said the coalition will use the next few weeks to turn up the heat on Republicans and Democrats — especially those whose districts have high foreclosure and bankruptcy rates — to support the bankruptcy provision.
It is co-sponsored by Rep. John Conyers, D-Mich., the Judiciary Committee chairman, and Rep. Steve Chabot, R-Ohio, whose state ranks among the highest for foreclosures and who is facing a tough re-election fight. It also has the support of both Democratic presidential candidates, Hillary Rodham Clinton and Barack Obama.
"The ball is really in the House's court to make a decision on how they handle this — either you're going to help folks out or you're not," said Greg Jefferson of the AFL-CIO.
Nadeam Elshami, a spokesman for Pelosi, was noncommittal about the bankruptcy provision. He said leaders are working with Frank and Rep. Charles B. Rangel, D-N.Y., the Ways and Means Committee chairman whose panel last week approved a bipartisan housing tax bill, on a broad housing measure, "while not ruling out any proposal that could provide additional relief to families at risk of losing their homes."
Andrew Jakabovics, a housing specialist at the liberal Center for American Progress, said there is a growing sentiment that Frank's and Dodd's plans are "too incremental, and also on some level too voluntary."
The bankruptcy provision and Waters' bill could complement the those measures because they would provide an additional incentive for loan servicers to make modifications that would head off foreclosure, he said.
House leaders are "still trying to figure out how important these components are and much of a fight there's going to be if they get included," Jakabovics said.
The Senate, which passed a housing package chock-full of business tax breaks last week, voted down the bankruptcy provision. Minutes after the so-called Foreclosure Prevention Act passed, Dodd said it did not live up to its name.