Facade of Bipartisan Bonhomie Cracks over Debt Relief

July 30th, 2008

Only a month ago Bush and the Democrat leaders had cheered each other over their handshake to tackle the foreclosure problem cooperatively. But on Thursday the façade of bipartisan bonhomie cracked over foreclosure relief. The bone of contention was the economic stimulus plan.

The Republicans in the Senate toed the line of Bush and blocked a bill brought by the Democrats that would allow more funds for foreclosure counseling and permit bankruptcy judges to reduce the terms of the mortgage for those about to be evicted because of foreclosure.

The Democrats proposed plans to bail out thousands of foreclosed victims together with their lenders by allowing the government to purchase and restructure house loans amounting to billions of dollars. The Bush administration flatly rejecting it asked the Congress to extend without limits tax cuts – the scheme that would expire on 2010.

The two parties crossed ideological swords when data showed that the health of the economy was worse than what it was before. The debate raged over whether the government should attempt to stabilize house prices, stop foreclosures and even go to the length of bailing out troubled lenders.

The chairperson of the Federal Reserve Ben Bernanke said to the Banking Committee that he did not think that either recession or stagflation was in the offing. He repeated what he had said earlier – growth would be very slow this year. Investors were in shivers when he added that he expected many small banks to fail. The Dow Jones responded by declining 112 point in its industrial average.

The Democrats want to go ahead with its plan of beefing up the real estate market with federal funds, allowing more bargaining powers to the foreclosure victims when they talk with the lenders and allowing the government to purchase troubled house loans.

It is an open secret that 20% of the sub-prime mortgages were made to those with low credit scores, low income and prone to default. Even those with good credit history are falling into the foreclosure danger zone by defaulting. If the Democrats had their way then the bill would fund $4 billion for state and local plans to fix up abandoned house, $10 billion for the states to raise money by floating tax-free revenue bonds for the purpose of raising low cost mortgage money and provide another $200 million for counseling to help borrowers overcome foreclosures.