WASHINGTON – Californians may be at the epicenter of the nation's foreclosure crisis, but more than half of them live in high-cost areas that could be denied aid under a proposed federal bailout.
While Congress is promising to approve a massive bill aimed at keeping thousands of Americans in their homes, its passage is being delayed partly by a dispute over who would be eligible for government-backed loans.
Earlier this year, Congress temporarily set the loan limits at $729,750. But the Senate is now proposing to reduce it to $625,000, which would make it harder for struggling homeowners to refinance loans in California, Florida, Hawaii and other states with high property values.
"These provisions are a serious blow to California," said California Democratic Sen. Barbara Boxer.
The limits will determine who can cash in on a $300 billion program aimed at paying for new mortgages for homeowners facing foreclosure. It would allow the Federal Housing Administration to help an estimated 400,000 borrowers who would otherwise not qualify for new and cheaper 30-year fixed-rate mortgages, which would be guaranteed by the U.S. government.
Under the new program, lenders would have to agree to take losses on the original mortgages, but they'd have a good incentive to do so: Not only would they have a new government-assured loan in their portfolio, they'd also lose less money than if the existing loan went into foreclosure.
If the Senate doesn't change the bill, Boxer said, it could hurt the 21 million Californians who live in 14 counties where the median price of a house is so high they would already qualify for the maximum loan of $729,750. They are Alameda, Contra Costa, Marin, San Francisco, San Mateo, San Benito, Santa Clara, Santa Cruz, Los Angeles, Orange, Napa, Santa Barbara, Monterey and Ventura counties.
Still, the program has the potential to help thousands of Californians.
100,000 could be helped
There are no official estimates, but with California accounting for roughly 20 percent of all foreclosure cases, the federal aid should help 80,000 to 100,000 households in the state, said Paul Leonard, California office director of the Center for Responsible Lending in Oakland.
And while the 14 high-cost counties may account for more than half of the state's population, Leonard said the greatest concentration of defaults and foreclosures have been elsewhere. So more of the money is likely to go to such places as Sacramento, he said.
Boxer wants to scrap the $625,000 limit and keep the higher limit, which has already passed the House. Overall, she said, more than 97 million Americans live in high-cost areas in 27 states that would be ineligible for loans under the lower limit.
Arguing on the Senate floor for the higher cap, Boxer told her colleagues that California already is home to 11 of the top 20 metropolitan areas in the country with the most foreclosures.
"(In May) alone, one in every 183 California households received a foreclosure filing, a rate that was 2.6 times the national average," Boxer said.
The House passed its bill in early May on a vote of 266 to 154. Among the Sacramento-area members of the delegation, Democratic Reps. Doris Matsui of Sacramento and Mike Thompson of St. Helena backed the measure, while Republican Reps. Dan Lungren of Gold River and John Doolittle of Roseville opposed it.
The housing bill is one of the few major pieces of legislation that has a good chance of passing before Congress adjourns this year, though President Bush has indicated he might veto it. The legislation will be atop the agenda when Congress gets back to work next week.
As the Senate prepared to leave Washington for its July Fourth break with the bill stalled, Connecticut Democratic Sen. Chris Dodd said Congress must act quickly, predicting the crisis would worsen.
Dodd, the Senate plan's chief sponsor, said that each day brings another 8,000 Americans going into foreclosure, and he predicted July would bring "another tidal wave" when more adjustable-rate mortgages are reset.
In a healthy sign, home sales in California increased by 18 percent in May, compared with a year ago. But the rise was due partly to the large number of distressed homes on the market, according to the California Association of Realtors.
Foes point to 'bad actors'
Senate critics are opposing the bill on philosophical grounds, saying taxpayers should not be put on the hook for private-sector mortgages that should never have been made.
"This bill forces millions of Americans who have played by the rules and paid their mortgages on time to pay for the mistakes of a few bad actors in the lending industry," said South Carolina Republican Sen. Jim DeMint.
Lungren said Congress must make sure it doesn't provide an incentive for foreclosures, adding that the federal government should not be responsible for making payments on houses that people couldn't afford: "Why should taxpayers keep you in that house?"
But Boxer is still hopeful Congress would pass a bill.
"This isn't about some ideological issue," she said. "This is about people being thrown out of their castles – their home – and thrown into the moat, and it is about communities that then begin to wither."
Call Rob Hotakainen, McClatchy Washington Bureau, (202) 383-0009.
