ATTLEBORO - U.S. Rep. Barney Frank said Friday he is working on legislation aimed at easing the crisis in the real estate and subprime mortgage markets by allowing states to buy up abandoned property.
Frank, D-Newton, said the current economic slowdown is unique in that is largely caused by the problems with subprime mortgages. The uniqueness of the situation makes it less likely the problem can be solved with traditional economic stimulus measures.
Chairman of the financial services committee, Frank wants a $10 billion bill that would address the situation in a number of ways.
He said the bill would not be a bailout because an estimated 80 percent of the money would be repaid.
One measure would have the federal government loan states money to buy property that has been foreclosed upon or abandoned.
The states could then sell the homes as affordable housing and use the proceeds to repay the loans, he said.
The move would get homes off the market and back on tax rolls while preventing them from becoming blights on neighborhoods, he said.
Abandoned homes often become magnets for problems. Frank said they can get taken over by drug addicts while thieves gut the houses of copper piping.
Another effort would focus on preventing foreclosures.
Under the plan, Frank said the government would guarantee the sale of certain mortgages in the secondary market in exchange for lenders rewriting the loans in terms homeowners can afford.
He said the subprime mortgage market was under-regulated, resulting in too many bad loans.
Lenders have to accept some losses for their bad decisions, he said.
There will be no subsidy for homeowners in the bill, he said, and lenders would have to pay the government a premium for the guarantee.
By accepting some losses on bad loans, Frank said terms of mortgages could be lowered, homeowners would keep their houses and some foreclosures would be prevented.
He said there is expected to be 3 million foreclosures this year, compared with 500,000 in a normal year.
Eric Berman, a spokesman for the Massachusetts Association of Realtors, said the group has not seen the details of Frank's plan, but is encouraged that Congress is looking into ways of stimulating the market.