WASHINGTON — Californians may be at the epicenter of the nation's foreclosure crisis, but more than half of the state's population lives 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 that 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 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.
Boxer wants to scrap the lower limit of $625,000 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 for the higher cap on the Senate floor, 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 time the national average," Boxer said.
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 4th break with the bill stalled, Connecticut Democratic Sen. Chris Dodd said Congress must act quickly, predicting the crisis will worsen.
Dodd, the chief sponsor of the Senate plan, said that each day brings another 8,000 Americans going into foreclosure, and he predicted July will bring "another tidal wave" when more adjustable-rate mortgages are reset. Moreover, Dodd said, economists are predicting as much as a 30 percent decline in home values, adding to the 15 million homes in the United States where debt already exceeds equity.
"No state is paying the price as much as California," Dodd said.
In a healthy sign for the housing market, home sales in California increased by 18 percent in May compared to a year ago. But the rise in sales was due partly to the large number of distressed homes on the market, according to the California Association of Realtors.
Statewide, the median price of an existing home fell by more than 35 percent during the same period, from roughly $594,000 to $385,000, the association said in a report last week. The median price was lower than the statewide average price in the Sacramento region, where it was down 34.5 percent, to $233,230, and higher in the San Luis Obispo region, where it declined 23.7 percent to $442,310.
While the bill has broad bipartisan support in both the House and Senate, Senate Majority Leader Harry Reid of Nevada pulled it from consideration last week after Republican Sen. John Ensign of Nevada said he would use stalling tactics to delay its passage unless Congress included renewable-energy tax breaks in the legislation.
Congress' failure to approve a bill has been a source of frustration to many Democrats, including Rep. Lois Capps of California. As the housing crisis worsens, she said she hears one question over and over from constituents: 'What is going on? You are not doing anything.' "
She said she has a stock answer: The House has done its part.
"We have done so much good work in the House that has been stymied in the Senate," Capps said. "It is very frustrating to know that families are suffering and we’re stuck."
Senate critics are opposing the legislation on philosophical grounds, saying taxpayers should not be put on the hook for private-sector mortgages that should never have been made in the first place.
"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.
California Republican Rep. Dan 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."
During a Senate debate, Republican Sen. Mel Martinez of Florida told the story of a man from Ruskin, Fla., who was approved for a $280,000 home even though he made only $12.50 an hour working with a lumber company in Bradenton, Fla.
"These stories are all over the country," Martinez said. "There may be some parts of America that are untouched by this crisis, but I will tell my colleagues that Florida has been hit, and Florida has been hit hard.'
Despite all of the bickering, Boxer is hopeful that members of Congress will pass a bill, "and for a few shining moments come together and get this thing going."
"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."