States Spar For Foreclosure Funds
The House Financial Services Committee approved a $15 billion foreclosure aid package Wednesday, but only after it survived a behind-the-scenes regional fight in which Chairman Barney Frank (D-Mass.) invoked House Speaker Nancy Pelosi (D-Calif.) to stave off Midwest efforts to claim a larger share of funds, at the expense of California.
Frank said he acted on his own judgment, without Pelosi’s involvement.
“I would say she was invoked but she was not involved,” he explained.
The battle — and the hair-splitting — illustrates tensions raised by a subprime mortgage crisis that has slammed some states with recently booming economies and others that had long been struggling.
A bipartisan group of Ohio policy makers objected to the distribution formula used by the legislation, sponsored by California Democrat Maxine Waters, that would establish a $15 billion loan-and-grant program to help states purchase abandoned, foreclosed homes and thereby stabilize communities.
The original formula took into account a state’s median home price as well as its percentage of nationwide foreclosures. Calculations by the Ohio lawmakers’ staffs showed that would give nearly a third of the $15 billion to California.
That formula “discriminates against many of the states hardest hit by the subprime mortgage crisis,” Republican Reps. Steven C. LaTourette and Deborah Pryce wrote in a March 21 letter to Waters.
California reported the highest total number of foreclosure filings in March, the 15th month in a row the state has taken the top slot, according to RealtyTrac. While Ohio followed close behind, in third, the two states got there in different ways. Ohio and other Rust Belt states saw subprime loan problems and foreclosure rates climb steadily over the past couple of years, in part because of sagging economic growth, experts say. California, Florida and Nevada, on the other hand, experienced skyrocketing home prices in hot markets. Borrowers continued to get subprime loans and just kept refinancing — until the market cooled and they couldn’t anymore, setting off the foreclosure crisis.
“In that sense, we became exposed to it earlier,” said Zach Schiller, research director for Policy Matters Ohio, a nonprofit research center.
LaTourette and Pryce asked Waters to consider removing consideration of home prices from the distribution formula, instead doling out funds based solely on a state’s share of national foreclosures.
“By making this simple change to the bill, Congress will be able to help more homeowners and not disproportionately redistribute funds to areas where home prices have been artificially inflated,” the Ohio lawmakers wrote. Ohio Democrat Charlie Wilson also complained that the funding was unfair “because Ohio’s median home price is far lower than other states that are not nearly so distressed.”
On Tuesday night, Frank told LaTourette that Waters did not object to the change, the Ohio lawmaker told Politico. But Wednesday morning, Frank called back: “He forgot who else was from California,” LaTourette said.
That other Californian would be Pelosi.
Frank said all formulas for doling out money are problems when there isn’t enough to go around.
Lawmakers look for “equity, efficiency and the votes to move the bill,” he said. It was his judgment that a compromise benefiting California a little more would give him needed leverage.
“I had to make the final decision. You invoke what you can. You can’t always say, ‘This is what I want.’”
The compromise Frank hammered out with the Ohio lawmakers kept median home price as a factor but capped the total amount of funds any one state can receive. California received 25 percent more money than it would have without home values in the formula, as well as first claim to ay unused funds, Frank said.
Ohio’s share also increased to $586 million from $436 million, according to numbers from Pryce’s office.
Michigan and Pennsylvania, other states that felt shortchanged, gained $160 million and $73 million, respectively. Florida took the biggest prize of all, earning $310 million more of the funds, for a total of $1.85 billion.
All in all, only three states lost under the compromise: California, New Jersey and Frank’s Massachusetts. But California took the biggest hit by far, its share of the grant-and-loan package dropping by more than $2 billion.
The Ohio delegation is not complaining.
“Ohio gets $150 million more than it would have gotten when I woke up this morning. That’s not bad,” LaTourette said. “My objection was, you can’t put the whole burden on the fact that you have a state with pricey homes. People who are losing their homes that cost less should have relief, too.”
