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The Policy Racket

Nevada delegation’s message on housing prices will be felt in 2012

Updated Thursday, March 31, 2011 | 1:14 a.m.

WASHINGTON — A vote taken completely on its policy merits is almost unheard of in Washington. And it’s a safe bet that the 2012 elections are looming large in lawmakers’ minds.

That backdrop made the Nevada House delegation’s votes Tuesday night on a proposal to end funding for an Obama administration program to bring underwater mortgages under control worth noting.

Those votes won’t resonate in the halls of Congress — although the House voted to end the program, the Senate isn’t expected to follow suit and President Barack Obama has promised a veto. But they will resonate on the campaign trail in 2012, when Nevada’s representatives are expected to face the fight of their political lives.

In Nevada, about 70 percent of home mortgages are underwater. The highest concentration of distressed homeowners is in the 3rd Congressional District, which Rep. Joe Heck represents and which will likely decide the outcome of the 2012 U.S. Senate race. Rep. Dean Heller has announced his candidacy for the Senate seat, and Rep. Shelley Berkley is strongly considering it.

There’s a lot of pressure to hit the right message on collapsed housing prices. But lawmakers can’t seem to agree on what that is. November 2012 might render the final judgment on whether Tuesday’s unorthodox votes by Nevada’s representatives were political blunders, or political genius.

As a caucus, Democrats have defended the Home Affordable Modification Program, but Berkley was one of 18 Democrats whose patience with the underperforming program ran out.

“Frankly, I’m tired of voting for legislation that I expect to produce results at home and finding a year later that precious little has been done,” Berkley said.

The program reduces monthly mortgage payments, but not the principal owed on an underwater loan. The program is limited to homeowners whose cases are considered salvageable — a category that does not come close to including the bulk of cases in Nevada, where the average home loan is 140 percent of the value of the depreciated home; far more than the 115 percent ceiling for the program.

Furthermore, being approved for assistance only brings an initial trial period of three months of reduced payments. Although those who are approved for the permanent program are eligible for up to five years of assistance, more than half of those accepted for the trial period are kicked off the program, rather than graduated to permanent status.

The Treasury Department has defended the program not on its record, but on its potential — and that’s the argument Heck went with when he cast a vote to preserve it. He was one of only two Republicans to do so. The program has helped many Nevadans, he argued, and could be improved.

But Berkley, a Democrat, and Heller, a Republican, disagreed.

Their districts have a lower foreclosure rate than Heck’s, but not by enough to account for the different viewpoints: Although Heck’s had the worst foreclosure rate in the nation last year, Berkley’s came in second.

Berkley’s vote to end the program also narrows a gap between her and a potential opponent — Heller — should she declare her candidacy in the 2012 U.S. Senate race. Republicans across the country have been trying to craft a strong message of reducing wasteful spending and cutting underperforming programs that Democrats are trying to safeguard (such as the mortgage program, which has a 2.6 percent success rate in Nevada).

Although Berkley and Heller could still come to blows over their votes on the budget or health care, Berkley’s vote on the housing program takes that argument off the table.

This is also a position in which Berkley has more cover than Heller. As co-chairwoman of the Democrats’ task force on housing stabilization, she’s going to be pressing to come up with alternatives, either by eliminating the program — which seems unlikely as the Senate and Obama don’t appear ready to let it go — or better ways of running it.

Berkley seems to prefer the Hardest Hit model, the federal program in which mortgage modification involves paying down loan principal, not reducing payments and stretching them out. She’s proffered such a bill — using tax incentives to encourage private investors to step in with the necessary cash in lieu of the government and banks — for the commercial sector.

Heller, on the other hand, hasn’t shown signs that he’s planning an alternative housing plan.

Tuesday’s vote was the last in a series of votes on mortgage assistance programs — which collectively have been Round 1 of a broader and longer-term referendum on the government’s role in the home lending business.

Two weeks ago, the House voted to end an FHA home mortgage modification program that hasn’t had any visible successes, and an emergency mortgage relief program that Nevada isn’t eligible for because it receives Hardest Hit funds. Berkley voted to preserve both. Heller voted to terminate both. Heck voted to preserve the FHA program with potential applications, but to end the emergency mortgage relief program.

With individual votes so scattered, it’s more likely that as the housing discussion moves forward — which it will — who wins the hearts and minds of the country’s worst-off foreclosure market may be determined more by candidates’ overriding philosophies than reading bill score cards.

Berkley believes the government has a big role to play in the lending market. Heller seems to want to leave things to the private sector. And Heck is somewhere in between.

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