Washington falling short on subprime response

WASHINGTON (Reuters) - While U.S. lawmakers and the administration have pitched several plans to arrest a national mortgage crisis, many of these plans are either too late or may do little to halt America's housing woes.

Lawmakers spent months debating three pieces of legislation that would have reformed the mortgage industry and rescued many of today's troubled borrowers -- but none of those plans look likely to become law before Congress takes its winter recess.

The Federal Reserve has promised to expand its mortgage-supervising powers by year-end, but that vow came only after lawmakers admonished the regulator for much of the year.

And a fresh, Treasury Department-brokered plan expected to be unveiled on Thursday to freeze mortgage payments for troubled borrowers may not reach enough of the 2 million home loans that are due to see a rate spike in a little more than a year.

"From day one, the federal government has miscalculated the depth and impact of the subprime crisis," said Howard Glaser, a mortgage analyst based in Washington and former official with the Department of Housing and Urban Development. "The concern now is that there is no action the feds can take to put a stop to this death spiral."

When a spike in failing loans sparked the subprime crisis last spring, many lawmakers and policy chiefs predicted that the nation could navigate the problem without a drastic policy shift or increased public spending.

"The solution to this problem may not be legislative," Senate Banking Committee Chairman Christopher Dodd said in late March. Around the same time, Treasury Secretary Henry Paulson and Federal Reserve chief Ben Bernanke said subprime housing problems were contained.

Policy-makers were slow to see the scale of the mortgage crisis and disinclined to meddle in the market, said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania. That inaction has ensured that the housing problems will be protracted, he said.

"Even now the Treasury is simply talking about brokering a deal rather than playing an active role," he said. "If policy-makers don't get more involved, we are going to slide into a totally unnecessary recession."

POLICY-MAKERS ON THE SIDELINES

While he did not immediately embrace the need for new mortgage industry legislation, Dodd was early to call the Fed to task for lax enforcement of a powerful mortgage regulation.

Dodd said that a broad reading of the Home Ownership and Equity Protection Act, also known as HOEPA, could have halted many dangerous mortgages that helped fuel the housing boom and a five-year run-up in home prices that ended in 2005.

At a Senate Banking Committee hearing in March, Roger Cole, director of banking supervision at the Fed, said "given what we know now, yes, we could have done more sooner."

The Fed has said that it is crafting tougher HOEPA rules that will be released by the end of the year.

And while Dodd initially resisted mortgage legislation, his staff is working on a reform package that should be unveiled in the next few days.

Rep. Barney Frank, chairman of the House of Representatives' Financial Services Committee, has been the most active on the legislative front.

This year, the Massachusetts Democrat has shepherded three bills through the House that would create new mortgage industry standards and modernize two major government-sponsored housing enterprises: the Federal Housing Administration and mortgage finance cousins Fannie Mae and Freddie Mac.

Dodd never introduced a bill to rework the regulations that govern Fannie Mae and Freddie Mac, and his FHA modernization proposal has not yet been voted on by the full Senate.

Another legislative plan to let bankruptcy judges erase mortgage debt has stalled in the judiciary committees of both congressional chambers.

In his strongest-yet move to curb foreclosures, President George W. Bush ordered the Department of Housing and Urban Development to loosen its standards on a program that can refinance troubled borrowers in a move that could help 240,000 homeowners win better loan terms next year.

Still, many observers warn that the faltering, uneven steps so far taken to address the mortgage market could be too little, too late.

"These steps may buy some time, but the housing issue is not going away," said Brian Gardner, a vice president at investment bank Keefe, Bruyette & Woods Inc. in New York.

(Reporting by Patrick Rucker; Editing by Jonathan Oatis)