Coleman addresses mortgage crunch

Easing the housing crisis with provisions to keep people in their homes in itself is economic stimulus for an ailing economy, Sen. Norm Coleman, R-Minn., said Thursday.

Easing the housing crisis with provisions to keep people in their homes in itself is economic stimulus for an ailing economy, Sen. Norm Coleman, R-Minn., said Thursday.

"Right now we've got an economic tide -- it's a riptide -- and it's pulling everything down," Coleman told Minnesota reporters Thursday in a telephone news conference about an increasing number of mortgage foreclosures.

"What we're doing here addresses the economic riptide and is providing needed responsible relief that is being done in a bipartisan way," he added.

The Senate continued Thursday to consider policy to stem the tide of mortgage foreclosures, many caused by at-risk homeowners with subprime mortgages who no longer can meet rising monthly payments.

"This is not a silver bullet, there's not one single thing that you can do," Coleman said of the eventual bill the Senate will consider. "This bill doesn't have all the answers but it is clearly a step forward."


One of the provisions which will be accepted is authored by Coleman, which would extend from three months to nine months that foreclosure action would be delayed for veterans returning from active duty.

"This provision will expand it to nine months, so this grace period, this period to give people a chance to get back on their feet, has been accepted as part of the base bill," the Republican said. "This will then hopefully provide an extended period of time for our returning G.I.s to work out some of the foreclosure challenges that they're facing."

The figure is a compromise, but a good one in a bipartisan bill, Coleman said. "It's about breathing room, and I'm thrilled that the breathing room is somewhere between a year and six months, and we got nine months. I'm pretty happy with that."

Another provision in the base bill is a $10 billion appropriation for mortgage revenue bonds for refinancing subprime mortgages, he said.

The bonds will provide funds to state housing finance agencies "to sell bonds and use the proceeds for folks to refinance their homes, which provides more safe, secure mortgages and get them out of the shaky subprime loans, the unaffordable loans -- loans in which interest rates have shot up in some cases doubling the cost of a mortgage," Coleman said.

"It's not a buyout, it's not a cram-down, the money comes from the private sector and not the federal government," he said.

Another key element are tax credits for people who buy foreclosed or newly constructed homes, Coleman said. The two-year tax credit would be worth $3,500 a year, totaling $7,000. The tax credit could force down prices for many other sellers.

"We need to get the inventory of houses in the process of foreclosure off the market, get folks to buy that, and the reality is that when these homes are on the market, it lowers the value of everybody's home," Coleman said.


"If you can get excess inventory off the market, it has a direct beneficial effect on every homeowner by having the opportunity to have the value of their home to be raised," he said.

Coleman said he sided with efforts to give bankruptcy judges limited flexibility to restructure mortgages, such as changing interest rates, but not with Democrat-backed plans to give the judges carte blanche to restructure loans.

He's also working to include in the base bill his provision which would allow homeowners who are 60 days late in their mortgage payments the option of withdrawing up to $100,000 penalty-free from their retirement accounts through 2009, as long as they pay back the funds within three years.

On Thursday, the Senate killed the latter plan in a 58-36 vote that would have given bankruptcy judges power to cut interest rates and principal on mortgages to avoid foreclosure. Bankers and GOP senators led the opposition.

"I do support allowing bankruptcy judges to adjust the interest rate," Coleman said. The more open authority, called a cram-down proposal, "would allow bankruptcy judges to come in and say new interest, new principal, new everything ... This would result in increasing rates for others and in effect would turn basic mortgages into junk bonds."

Mortgages under that system would "be really worthless, because who knows what they're worth if a bankruptcy judge would simply have in his or her power to decide what they're worth," he said. "The rest of us would pay a price for that."

Overall, Coleman said he was "thrilled" at the bipartisan effort to push through legislation to ease the mortgage crisis which in turn can ease the housing crisis that has dragged the economy down.

"This is a national, economic, political, local crisis we need to address," Coleman said. "This issue goes beyond housing."


He said during his tours of northern Minnesota he found the slowdown in housing was severely affecting loggers, sawmill operators and others in the timber industry. "It's a jobs issue, we've seen the loss of construction jobs in Minnesota for at least nine to 10 months now."

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