Congress Daily

After a setback last week, House Financial Services Democrats are reworking language to tailor $40 million in legal aid to borrowers on the verge of foreclosure. Rep. Melvin Watt, D-N.C., wanted to attach his amendment to a bill that would allow the Federal Housing Administration to provide up to $300 billion in refinancing subprime loans at risk of default. But in a surprising vote, seven moderate Democrats sided with Republicans in opposing the Watt language during Thursday’s markup, sending it to defeat, 34-28. Watt argued that his amendment would help struggling homeowners who need more than the counseling services provided by the Neighborhood Reinvestment Corp., a nonprofit created by Congress to allocate grants for community revitalization efforts. He pointed to the Senate’s approval of an amendment by Sen. Barbara Mikulski, D-Md., that would provide $30 million for NRC to fund legal-aid services.

During the markup, Watt’s amendment came under attack from Republicans, questioning why additional money had to be spent on the program and why the language included specific set-asides, such as requiring 60 percent for legal assistance for low-income homeowners or tenants. “We are almost saying we anticipate a lot of lawsuits here so we want to make sure there is plenty of money for it. I don’t think that this a signal we want to be sending,” said Rep. Randy Neugebauer, R-Texas. Watt responded that the NRC already funds such services and that they are desperately needed to respond to the crash in the subprime mortgage market. “This is using the same mechanism that is already in place through the NRC and trying to reduce the bureaucracy that is out there to make sure they get the assistance that they need,” Watt said. But Republicans said such money could be used for class-action lawsuits or go to controversial advocacy groups such as La Raza or ACORN. “I think this a step in the wrong direction in terms of transparency and in terms of fiscal responsibility,” said Rep. Tom Price, R-Ga. “It is more an effort to take more money from the taxpayer and funnel it to our friends in the legal profession.” Watt again denied that the money would go to class-action suits or would go to advocacy. “This is not a handout to attorneys,” he said.

But banking groups worked behind the scenes to alert members of the Blue Dog Coalition on the panel to the issue, arguing that the Watt language was far more expansive than Mikulski’s. They were able to sway seven Democrats — Reps. Dennis Moore of Kansas, Melissa Bean of Illinois, Tim Mahoney of Florida, Charlie Wilson of Ohio, Joe Donnelly of Indiana, Jim Marshall of Georgia, and Dan Boren of Oklahoma — to side against it. Financial Services Chairman Barney Frank then changed his vote so he could move to reconsider the issue when the panel meets again Wednesday to complete the markup. Frank said he would rework the language to specifically note it would not apply to class-action suits and not be used for advocacy purposes. “One, I don’t know if people fully understood it. Two, sometimes people are worried about things that weren’t intended. You can make clear on that,” Frank said. — by Bill Swindell