More Companies Lining Up for Piece of Bailout Fund
December 23, 2008 - 5:12 AMBarney Frank, chairman of the House Financial Services Committee, said Monday he is preparing legislation to require that some of the bailout money be spent for specific purposes, such as stemming foreclosures and reducing mortgage rates.
Wall Street expects the gross domestic product, the country's total output of goods and services, fell at an annual rate of 0.5 percent in the July-September quarter. That would match the estimate for GDP made a month ago, but economists believe that small drop will be followed by a much larger plunge in the current October-December quarter.
The National Association of Realtors is expected to report that sales of existing homes in the U.S. for November fell 1.6 percent to a seasonally adjusted annual rate of 4.9 million units, according to the median forecast of economists surveyed by Thomson Reuters.
And new home sales data from the Commerce Department are expected to dip 3 percent to 420,000 units in November. October's new home sales were the lowest in nearly 18 years.
Builders such as Centex Corp., Pulte Homes Inc. and Hovnanian Enterprises Inc. have been caught with a glut of unsold properties over the past year as mortgages became harder to get and sales slowed. Developers have slashed prices, but many buyers remain on the sidelines, waiting and watching for bigger discounts.
Barney Frank, chairman of the House Financial Services Committee, said Monday he is preparing legislation to require that some of the bailout money be spent for specific purposes, such as stemming foreclosures and reducing mortgage rates. Frank is pushing to get the second half of the $700 billion rescue fund released next month, before President-elect Barack Obama is inaugurated.
Frank's bill would impose tighter restrictions on the second $350 billion, such as requiring banks to report on their new lending every quarter and toughening limits on executive compensation. Many U.S. banks have received federal capital in an effort to stimulate lending.
"I don't want to wait until Obama," the Massachusetts Democrat said in a phone interview. "I think we can do it now."
A spokeswoman for Obama did not return a call for comment Monday.
Last week, the Bush administration used the final piece of the initial $350 billion to provide loans to automakers General Motors Corp. and Chrysler LLC. The Treasury Department has earmarked $250 billion to buy stock in banks and provided $40 billion in capital to insurance giant American International Group Inc.
Lawmakers have criticized Treasury for not using any of the initial $350 billion to prevent additional home foreclosures. Up to 2.25 million Americans could lose their homes to foreclosure this year, Federal Reserve chairman Ben Bernanke has warned.
Frank said his legislation would include a version of a plan, supported by Federal Deposit Insurance Corp. Chairman Sheila Bair, to spend $24 billion to give lenders financial incentives to modify more loans and help more borrowers keep their homes. Bair has estimated it could prevent 1.5 million foreclosures.
His proposal also would include a measure, under consideration by Treasury, to use government-controlled mortgage companies Fannie Mae and Freddie Mac to reduce mortgage rates to 4.5 percent or lower to stimulate more home buying.
Frank also wants to revamp the Hope for Homeowners program, which was launched Oct. 1. It was intended to let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed-rate loans with lower rates. The early results have been disappointing, with only 312 applications so far, and officials are looking at ways to expand the program's use.
Meanwhile, financial industry groups are pushing to use the bailout fund to help a wider array of companies, including automotive financing companies such as GMAC Financial Services. GMAC is 51 percent owned by Cerberus Capital Management LP, a private equity firm; General Motors owns the rest.
GMAC, which provides financing for GM vehicle and dealer loans along with home mortgages, is having trouble finding adequate support from its bondholders for a debt transaction that would allow it to become a bank holding company and gain eligibility for bailout money.
Commercial real estate developers said Monday they also are petitioning the government for support from the $700 billion rescue fund. The Real Estate Roundtable said an estimated $400 billion of commercial real estate mortgages will come due by the end of 2009 without adequate refinancing options.
Industry officials said thousands of office buildings, hotels, shopping centers and other commercial buildings could be headed into foreclosure or bankruptcy unless the government provides support.
Jeffrey D. DeBoer, president of the Real Estate Roundtable, said the industry has written to federal officials asking to be included in a new $200 billion loan program being run by the Federal Reserve, with support from the financial bailout program, to bolster the market for credit card debt, auto loans and student loans.
Treasury spokeswoman Brookly McLaughlin said no final decisions had been made yet on the request from commercial developers. But she noted that Treasury Secretary Henry Paulson, when he announced the effort to help the credit card, auto and student-loan markets, said the new lending facility could be expanded and specifically mentioned providing assistance for "commercial mortgage-backed securities."
AP Economics Writer Martin Crutsinger and Real Estate Writer Alan Zibel contributed to this report.
(Copyright 2008 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)