Members of the Senate left for the holiday break without passing a bill that would provide relief to 400,000 homeowners who are facing foreclosure. For all the talk about doing something for homeowners, we go into this holiday weekend with the status quo intact: a deregulated financial industry and government inaction in the face of market failure.

We have seen many housing bills over the past several months, including a proposal that stalled in February that would have given bankruptcy court judges the power to modify the terms of a mortgage, and reduce mortgage payments, as part of debt restructuring in a bankruptcy filing. If such a bill had passed in February, as many as 600,000 homeowners might have been able to refinance. But the financial industry lobbied hard against it, saying that such government interference in the relationship between buyers and mortgage lenders would ‘send a chilling message to investors.’

A lot has changed since February. Senators who were reluctant to act back then are now worried about what is happening to their constituents’ home equity. The housing price index shows that, between April 2007 and April 2008, home prices have dropped by 15 percent. Homeowners of every stripe are losing billions of dollars in home equity. Even with a threatened veto from President Bush, many Republicans are now eager to show their constituents that they are doing something about the housing crisis.

The centerpiece of the current housing bill is a plan to help distressed borrowers trade their adjustable-rate mortgages for more affordable fixed-rate, government-backed loans, provided that their banks will forgive a portion of their debt. The bill also contains some weak provisions for more accountability and disclosure from mortgage lenders. With an estimated 8,000 foreclosure notices being filed each day, this bill offers too little, and for many, too late. But it is a start, and it is something that affordable housing advocates can build upon.

Negotiating lower payments on subprime loans works out better for everyone, financially. Homeowners get to keep their homes and banks and lenders get more back than they usually do in a foreclosure (where they can lose 40 to 60 percent). According to the bill’s sponsors, lenders are going to have to accept some short-term losses in order to turn a bad mortgage into a good one, but they will do better in the long run because the refinanced mortgages will be federally guaranteed. Reducing the number of foreclosures would help stabilize the housing market; the current foreclosure rates contribute to declining property values. Many at-risk properties are not worth the amounts that are owed for them.

Some lenders are coming around, recognizing this is a better deal in the long run. But industry lobbyists continue to object to what they see as government interference in loan negotiations between borrowers and lenders. These objections are ideologically driven: over a 20-year period, these lobbyists have succeeded in winning deregulation of the financial industry and they fear a return to a New-Deal-type regulatory framework.

What about the President? White House spokesperson Dana Perino continues to make this standard argument: “The bill will likely do more harm than good by bailing out lenders and speculators and passing on costs to other Americans who play by the rules and honor their mortgage debt obligations.” This argument contains a disturbing sleight-of-hand, deflecting attention from homeowners who need help toward unscrupulous lenders and speculators. It lumps together the victims of predatory lending -- who stand to lose the only source of wealth and stability they have -- and subprime lenders who have been all-too-eager to make risky loans after loosening their underwriting standards. For a more accurate picture of the victims of subprime lending, take a look at the July 14 issue of the Nation.

The bill under consideration by the Senate contains two provisions that the White House opposes. One is the Affordable Housing Trust Fund, which would cover the costs related to refinancing over-inflated loans into federally insured mortgages. The fund will be financed with $500 million to $900 million a year in fees from Fannie Mae and Freddie Mac, the mortgage finance giants. The fund also would be used to create affordable rental housing.

The other highly objectionable provision (for conservatives) would allocate nearly $4 billion in grants to local governments so that they can buy and rehabilitate vacant properties in neighborhoods with high foreclosure rates. Property values have taken a nose-dive in these communities. The effects are as devastating as a natural disaster. Enabling local governments to reclaim these properties would set a useful precedent, and possibly open the door for community involvement in decisions about neighborhood revitalization. We’ll watch closely to see if this provision makes it into the final version of the bill.

--Sandra Hinson