Will Bad Mortgages Hurt the GOP?

Tim Walberg was one of the rare Republican success stories in 2006. After defeating Joe Schwarz, the moderate G.O.P. incumbent Congressman in his rural southwestern Michigan district, he went on to narrowly beat Democrat Sharon Renier with just 50% of the vote. Walberg, a fiscal conservative, ran on a platform of limited government, tax cuts and strong support of the war in Iraq.

Last Thursday, to the delight of Democrats, Walberg lived up to his conservative ideals — voting against a bill in the House that tightens restrictions against predatory lending. The measure, which garnered the support of 64 Republicans in passing 291-127, would force lenders to apply for licenses and require them to verify the ability of borrowers to repay loans. "I think the market always works when we let it," Walberg told TIME just before voting against the measure. "We want to make sure that we have opportunities for consumers to have safe and opportune mortgages. This bill, I think, goes away from that, puts heavy regulation in place, discourages lending practices for just very few people who've had that problem."

As the subprime mortgage crisis has worsened and Democrats have moved to pass legislation to the address the problem, they are accusing their G.O.P. counterparts of doing too little to prevent the predicament. The issue could become a potent campaign issue in '08, as the Democrats have targeted several vulnerable G.O.P. members, including Walberg, who voted against last week's bill.

The Republicans "were asleep at the wheel while this problem was heading straight at us," said Congressman Chris Van Hollen, head of the Democratic Congressional Campaign Committee, which works to elect Democratic candidates. "This is affecting people across the country in Michigan, in Florida, in Ohio — all important swing states. This will be part of the debate about the economy overall. And people who ignore it do so at their own peril."

Michigan, already reeling from mass layoffs in the auto sector, has been particularly hard hit by the subprime collapse. Detroit, which has lost half its population in the last 30 years, has an unemployment rate of 14%, and a third of the population lives in poverty. Statewide unemployment stands at 7.1%, behind only Mississippi nationally. Detroit foreclosures are at seven times the national rate with 7.55% of all mortgages already delinquent, according to the Mortgage Bankers Association. And Michigan was the only state to see the average price of homes fall in 2006 — down 0.4% versus an average growth nationwide of more than 6%. Homes are selling for less than cars these days in much of Michigan, and on Friday Treasury Secretary Henry Paulson warned that the crisis will get worse before it gets better.

All of this led Congressman Joe Knollenberg, another Michigan Republican, to vote for the Democrats' subprime bill. Knollenberg, who represents the Detroit suburbs, not only supported the measure; he hopes the Senate will strengthen it before final passage. "More and more of these people who live in nice houses, in nice areas, good schools, kids going to college — now all of a sudden they're scared, they're overextended," said Knollenberg, the top Republican on the Housing and Urban Development Appropriations Subcommittee. "I'm not satisfied with the bill in its current form, but I am going to vote for it. I think that there are some things that could be done to further enhance and help these people."

A similar measure has been stalled in the Senate for weeks. The White House and congressional Republican leadership oppose the bills, arguing that meddling in the market could do more harm than good. Opponents argue the bill could make it difficult for those already mired down with crippling mortgages to refinance their loans and would make it nearly impossible for poor people to qualify for mortgages. "The Administration has concerns with the bill as drafted because it includes provisions that unduly restrict access to credit for potential homebuyers and reduce refinancing opportunities for current homeowners," the White House said in a statement. President Bush, however, has not said whether he would veto the measure.

Democrats accuse the Administration and Republican-led Congress of ignoring the problem until it was too late. "This was the result of the Republican philosophy that you never have regulation, so yes, they could've done something," said House financial Services Committee Chairman Barney Frank. Frank blames Republican leaders for killing a bipartisan measure to tighten regulations on subprime lending in 2005.

Democrats have already ramped up the pressure on Walberg and his colleagues. "Even as Americans go deeper and deeper into debt with mortgages from shady lenders, Representative Tim Walberg is protecting predatory lenders at the expense of America's middle-class families," said Jennifer Crider, communications director for the Democratic Congressional Campaign Committee. "Representative Walberg clearly values his special interest pals more than middle-class Americans struggling to keep their homes."

Walberg, in turn, accused the Democrats of playing politics with the issue. "When you make a law like this — politically posturing on the basis of probably no more than the 10% or 15% of the loans that were made were fraudulent and took advantage of people, and the rest were good — it moves away from necessity to pure political gotcha."

After Walberg's narrow victory in 2006 (a race in which he outspent his opponent by $1.2 million to $46,000), the Democrats this time have recruited a top-tier opponent: State Senator Mark Shauer, who has championed the predatory lending issue in the state legislature, co-sponsoring legislation that would tighten oversight on loan officers and support programs to help homeowners refinance their mortgages. Schauer plans on campaigning on the issue and accuses Walberg of turning his back on people in need. "The people in Michigan are struggling, and we're doing what we can to help at the state level," Schauer said. "But Washington and my opponent need to step up."

Walberg said he's not worried. "Michigan's got far more problems than just this. The economic climate with the expensive tax increases just put on by the State Legislature and the governor, the challenges with the auto industry: these are far greater concerns than this."