Democrats Encounter Head Winds on Mortgage Bill

WASHINGTON — Senate Democrats encountered delays and a veto threat Tuesday as they pushed a bill aimed at helping bankrupt homeowners avoid foreclosure.

Republicans put off a vote on the Foreclosure Prevention Act, which they and many lenders oppose, by agreeing to let the Senate begin an extended debate on a bill that would speed the withdrawal of U.S. troops from Iraq.

Democrats said the move amounted to a stalling tactic and promised to try again to pass a bill they say would help about 600,000 bankrupt homeowners.

"It seems to me they're going to do everything they can to keep us from getting to the important housing legislation," Reid told reporters.

Raising a further obstacle, the White House said President Bush would veto the bill in its present form because of another of its provisions that would provide $4 billion to communities to purchase and rehabilitate foreclosed homes.

That "would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners," the White House said.

More evidence of the mortgage crisis's continuing toll came Tuesday when the closely watched S&P/Case-Shiller home-price index showed that in December, home prices were down more than 9 percent from the previous year –- a record decline.

"House prices are in a free fall," Patrick Newport, an economist with the forecasting firm Global Insight Inc., said in a written assessment of the S&P/Case-Shiller data. Because inventories of unsold homes remain so high, "further price declines are inevitable," he said.

At a news conference, Democrats tried to build a sense of urgency by inviting a middle-class couple from suburban Cleveland, Ohio, to explain the plight of families facing foreclosure. Democratic senators introduced John and Vicki Glicken, who had purchased their modest two-bedroom home in 2005 with an adjustable-rate mortgage. Their monthly payment was set at $900.

Glicken said the lender suggested the monthly payment would rise only if interest rates in general went up. But while 30-year mortgage rates are no higher today than in 2005, the Glickens' payments have shot to $2,300 a month.

"They didn't disclose anything" about how the interest rate would automatically ratchet up every six months, Glicken said. With home values falling, the couple cannot refinance the loan. "We just keep getting further and further behind," he said.

The couple filed for bankruptcy under Chapter 13 proceedings, the so-called "wage earner's plan" that allows individuals with regular income to work out a plan to repay all or part of their debts.

Under Chapter 13, a judge can order lenders to lower the interest rates on vacation homes, family farms or even yachts, but not on primary residences, said Senate Majority Whip Dick Durbin, D-Ill. Giving judges the ability to reduce lower home mortgages is "critically important" to the estimated 1.8 million homeowners facing foreclosure, he said.

Lenders are fiercely opposed to the legislation, saying mortgage rates would increase by at least 1.5 percentage points for all borrowers if lenders had to absorb the cost of "cramdowns," their word for the forced rewriting of mortgage terms.