Mortgage mess echoes in Congress

WASHINGTON — As mortgage-related turmoil weighs down the U.S. economy, members of Congress are considering a range of measures aimed at easing the current problems while preventing such a crisis from recurring in the future. Lawmakers are pushing regulators to police the mortgage business more vigilantly. They are preparing legislation that would overhaul standards for all home loans, imposing new regulation on brokers, independent lenders and investors who purchase mortgage-related securities.

And they are urging a broader role for the giant, federally chartered mortgage finance companies — Fannie Mae and Freddie Mac — in helping refinance delinquent mortgages. The political realities were dramatized last week when President Bush, who has not encouraged an activist federal response to the mortgage crisis, called for a series of measures to stem mortgage defaults and help people hold on to their homes.

Bush’s proposal included a new program that would help once-creditworthy borrowers refinance their adjustable-rate mortgages, even if they were already in default. The loans would be insured by the Federal Housing Administration. Members of Congress, who return today from their August recess, will be pushing their own agenda for change. “The mortgage crisis is going to get worse — and until the mortgage crisis is solved, the credit crisis will not be over,” said Sen.

Schumer (D-N.Y.), reflecting the rising level of concern on Capitol Hill. Lenders warn that a government overreaction to problems in the mortgage industry could backfire, drying up credit at a time when it is sorely needed and putting loans out of the reach of worthy borrowers.

“The Hobson’s choice here is that if we go too far in passing rules to protect people in the mortgage market we could end up denying them access to credit,” cautioned Kurt Pfotenhauer, senior vice president of government affairs for the Mortgage Bankers Assn. Lawmakers will consider three aspects of the mortgage-related mess: A sharp decline in capital available for investors is jeopardizing economic growth.

The Federal Reserve has tried to ease concerns by making cash more available, but some lawmakers believe the response is not sufficient. They want Fannie Mae and Freddie Mac to inject billions of dollars into the marketplace.