WASHINGTON (Reuters) - The home mortgage crisis that has Wall Street and consumers worried about an economic meltdown is prompting many in the U.S. Congress to come to the rescue of hard-hit states that just happen to be crucial to their own election-year success.
Florida, Ohio, Michigan and California have some of the highest concentrations of home foreclosures. They also are vote-rich states that congressional and presidential candidates need to win in November’s elections.
“We’re waiting to see what kind of an impact this latest news is having on members (of Congress) from Ohio to Pennsylvania to Florida and elsewhere around the country,” said Jim Manley, spokesman for Senate Majority Leader Harry Reid of Nevada. His state’s largest city, Las Vegas, claims the highest rate of home foreclosures in the country.
“There’s obviously a need that must be dealt with,” Manley said.
The “latest news” Manley referred to is the souring U.S. economy, highlighted by the Federal Reserve’s role in rescuing a teetering Bear Stearns, the fifth-largest Wall Street investment bank until it was bought by JPMorgan Chase and Co.
Congress returns from a recess on Monday, when measures to stanch home foreclosures and further stimulate the economy will be “front and center,” said Illinois Rep. Rahm Emanuel, a member of the House of Representatives’ Democratic leadership.
The legislation would follow moves already taken by the Fed, which has promised to pump $400 billion into the financial system to help credit markets and, for the first time since the Great Depression, opened emergency credit to investment banks.
With the weak economy a top concern among voters, Democrats are seizing on the issue in hopes of demonstrating they are better suited to protect the poor and middle class from the downturn. Their performance could help voters decide whether the Democratic majority in Congress should be expanded in November elections, and whether they should put a Democrat in the White House.
For congressional Republicans, the hope is that the economic stall is bottoming out and that there is little need for government meddling in the mortgage industry, a move they say might make matters worse in the long-run.
The presidential candidates, congressional leaders and the administration of President George W. Bush are not pushing for a huge bailout of U.S. housing and finance markets.
But the White House hopefuls — Republican John McCain of Arizona and Democrats Barack Obama of Illinois and Hillary Clinton of New York — will likely use their Senate seats to influence the legislative response on Capitol Hill.
Any attempt in Congress to craft a massive bailout “would fall flat” in the 100-member Senate, where 60 votes are needed to move major initiatives, said an aide to a high-ranking Senate Republican.
Given huge U.S. budget deficits and skyrocketing government debt, fiscally conservative Democrats in the House, known as “Blue Dogs,” also could put the brakes on big-ticket bills.
“There are certainly things that we can and should do to address this crisis, such as helping low-income homeowners who were the victims of predatory lenders refinance in order to stay in their homes,” said a leading Blue Dog, Rep. Dennis Moore of Kansas.
Moore added that measures to stabilize the housing sector and the broader economy must keep in mind the taxpayer cost.
Congress’ debate will center on plans by Democrats Rep. Barney Frank of Massachusetts and Sen. Christopher Dodd of Connecticut to have lenders excuse a portion of some mortgage loans while government-run entities soak up $300 billion in shaky mortgages that would then be repackaged.
Some Republicans, who think the housing crisis may be easing and that many of those in jeopardy should face up to the risks they took, will offer narrower measures. Those include incentives for buyers to scoop up foreclosed houses to reduce a large inventory that is suppressing prices.
The biggest unknown, however, could be Bush, who had been signaling opposition to government bailouts. But the administration now is cobbling together its own proposal to help some distressed homeowners stay in their homes.
Given Congress’ intense interest in doing something this election year, “A compromise bill could certainly be signed,” said one aide to a fiscally conservative House Democrat who has been working on legislation to ease the mortgage crisis. “There’s still a ways to go.”
Asked about the possibility of a much broader taxpayer-financed bailout, the aide, who asked not to be identified, added, “If things (the economy) continue to go south ... you never know what could happen.”
Additional reporting by Patrick Rucker