Christopher Dodd, the Senate banking committee chairman, insisted on Wednesday that any economic stimulus package for the US must go beyond short-term measures, proposing a new $10bn-$20bn fund that would buy outstanding mortgages at steep discounts to help distressed homeowners.
Laying out what he called a “very ambitious agenda” for the committee this year, the Connecticut Democrat suggested that any package should also include $10bn to allow local governments to buy foreclosed homes and resell them to homeowners.
He said a short-term stimulus package was “important” but would not be enough. “It’s almost like a pebble in Lake Michigan; we need to be talking about much more in the short, mid and long term.”
Mr Dodd’s proposals, as well as others to emerge on Wednesday, appear to indicate that Democrats are attempting to take advantage of the recent break-out of bipartisanship in Washington to push broader solutions that may involve investment in the country’s crumbling infrastructure, tackling energy independence, and reforming the benefits system.
Harry Reid, Senate majority leader, said Congress should work on a long-term plan to pay to build roads, utilities, schools and housing.
Mr Dodd’s proposals, in a letter to Mr Reid, also included a suggestion that any stimulus package should include passage of a bill to reform the Federal Housing Administration, which provides mortgage insurance on loans.
Last September, the Senate passed a bill that would make FHA loans with more favourable terms available to subprime borrowers facing foreclosure.
However, the legislation has been stalled due to differences between the Senate and a House version of the bill.
Mr Dodd said he would meet Barney Frank, House financial services committee chairman, on Thursday “to talk about how we can reconcile these two bills, so that it could be a part of the stimulus package as well”.
“I want to get beyond just [tax] rebates ... If this is in fact a [mortgage] foreclosure crisis then we need to be doing something if we can about the housing issue,” Mr Dodd told reporters.
Next week, the banking committee holds the first of a series of hearings into housing foreclosures.
Mr Dodd also said he wanted the administration to raise the size of loans that the mortgage lenders Fannie Mae and Freddie Mac are allowed to buy – the so-called conforming loan limit – to ease liquidity in the mortgage market.