Trying to build a shelter from a housing collapse

BARNEY FRANK IN PORTLAND

Sunday, April 27, 2008
David Sarasohn
The Oregonian
Original story here

"People say to me," growled Barney Frank, chairman of the House Financial Services Committee, describing the bill to ease the subprime mortgage disaster that he's piloting through his committee, " 'a lot of smart people disagree with what you're doing.'

"I tell them, 'No dumb people caused this problem. This crisis was brought to you by the smartest people in the world.' "

And, it seems, they did a very thorough job of it. By the Massachusetts Democrat's calculations, the country faces between 2 million and 2.5 million foreclosures in the next two years, three or four times the usual number. He figures the bill his committee began marking up last Thursday, and expects to pass to the House floor this coming week, might ward off 25 percent to 60 percent -- leaving plenty of pain to go around.

"I believe if we do this right," Frank said in an interview in Portland earlier this month, "we can diminish both the depth and duration of the economic downturn. But we can't make it go away."

There it still is, heading toward us, very large on the horizon.

Which is why, assessing his bill, Frank quotes not only Federal Reserve Chairman Ben Bernanke but the legendary comedian Henny Youngman -- famous for answering, when asked how his wife was, "Compared to what?"

Frank was in Portland raising money for Nick Fish, candidate for Portland City Council who was once a Frank staff member and is still involved with housing issues. Frank noted that Portland wasn't a hot spot of the subprime disaster -- the hardest-hit areas, he said were those that were exploding, like Nevada or Florida, or already hurting, like Ohio -- but that it was already seeing declining local real estate prices.

The bill moving through his committee would expand the Federal Housing Administration's ability to guarantee renegotiated mortgages, if the lender is willing to make adjustments. It would also send money to the states to acquire empty residences and get them back on the market, and provide some help for fraud detection and credit counseling.

It's similar to a bill moving through the Senate, except that the Senate bill also includes some tax breaks for people buying foreclosed housing, opportunities that Frank considers attractive enough not to require encouragement by the tax code.

"Giving people a tax credit for buying a foreclosed house," he explained in gravelly Massachusetts tones, "is like paying a dog to eat a bone."

Frank is a bear-like figure, with a legendary (and frequent) bear-like growl when displeased or irritated. In a meeting earlier, he got into a lively exchange with representatives of a local low-income housing group, insisting, "Do not tell people who make $22,000 a year they can own a home in Portland. You are not doing them a favor."

But his anger is more steadily directed upward. Housing hasn't been a major interest of the federal government lately; as Frank notes, the Housing and Urban Development budget has declined for seven consecutive budgets. He sees the interest changing now that he and other Democrats have taken over Congress, but thinks there's a lot more change needed.

"If a Democrat becomes president, and you pick up a couple of Democratic senators" -- he looked around the group -- and continued, "like in Oregon, maybe, you'll get a moderate increase."

Besides warding off the worst of the housing flood -- in Washington last week, Frank explained, "What we hope to do today is to diminish the cascade of foreclosures" -- he's looking further ahead at the opportunity to do some more regulation of the market the federal government has now had to bail out.

Frank sees the market as getting to this point because financial executives could get heavily rewarded by putting together big, complicated deals, without much penalty if they didn't work out.

"For an executive," he says, "it's a situation of, 'Heads I win, tails I break even. So I flip the coin a lot.' "

And lots of other things get flipped as well.

"If you're rich and irresponsible, you probably won't pay much of a price. If you're poor and irresponsible, you're going to suffer."

But rewriting regulation will also await a different administration, and maybe a differently balanced Senate. It is, he explains, "a next-year issue."

This year's issue is how much disruption can be avoided with the congressional legislation, which carries its own question:

Compared to what?

David Sarasohn, associate editor, can be reached at 503-221-8523 or davidsarasohn@news.oregonian.com.