The Wall Street Journal-20080213-Politics - Economics- Voters Feel Mortgage Crisis- Congressional Races Reflect Importance Of Housing- Credit

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Politics & Economics: Voters Feel Mortgage Crisis; Congressional Races Reflect Importance Of Housing, Credit

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ST. JOSEPH, Mo. -- The nation's mortgage crisis is beginning to spill into the fight for control of Congress, adding new uncertainty to the election-year power struggle.

Just ask Kay Barnes, a Democrat looking to unseat Republican incumbent Sam Graves in this northwest Missouri Congressional district. Less than a year ago, Mrs. Barnes expected health care and perhaps Iraq would be the top issues. Now, housing and credit concerns are climbing in importance.

"It has been bubbling up to the top," she said. "That was not true -- at least it wasn't verbalized -- a few months ago."

While the battle for the White House is getting most of the attention, the outcome of the fight for control of Congress will ultimately determine whether there is dramatic change to Washington's status quo.

Even if a Democrat wins the presidency, supportive majorities in Congress will be needed to get anything done. Issues such as Iraq, health care and trade are not going away. But what is notable in the unfolding fight for Congress is how the collapse of the housing bubble has so swiftly become a defining political issue.

Democrats want to beef up their House majority and defend dozens of Democratic incumbents in Republican-leaning districts. Mrs. Barnes's challenge to Rep. Graves is one of the party's top-priority races. Mrs. Barnes has attacked Mr. Graves as "out of touch with the economic pain" of working voters, and she has pushed housing hard since the beginning of the year, making her empathy for voters' concerns a big part of her appeal for votes and talking up proposals to ease the crunch on consumers.

Tensions over housing and credit are emerging across the country as voters confront the reality that their biggest personal investment is no longer a guaranteed store of wealth, there to be tapped for college tuition or other needs.

For Republicans, already saddled with defending the Bush economy as recession looms, the issue underscores the party's political vulnerability. Democrats sense an opportunity, and party leaders are focusing on a fundamental message: "As the American economy struggles, the Democratic Congress is taking action."

In a memo circulated recently on Capitol Hill, party strategists underscored the importance of efforts to address a range of pocketbook concerns, from mortgages to energy, while exhorting Democrats to fight into the campaign year. "Our work is not done," the memo said.

By year's end, the balance of power in the House is expected to be determined in about 40 highly competitive races out of a total of 435, and the mortgage crisis is expected to ripple across all of those battlegrounds. Republicans would have to pick up 16 seats to regain control of the House, a challenge most analysts say will be difficult.

In Michigan, housing is driving a wedge between Republican Rep. Tim Walberg and his opponent, Democrat Mark Schauer, a state senator. Mr. Walberg voted against legislation that would have toughened oversight of mortgage lenders, while Mr. Schauer is pushing proposals to stiffen oversight of loan officers and ease foreclosure rates among veterans. "It is a huge economic issue in Michigan," Mr. Schauer said.

Some Republicans are trying to outflank Democratic rivals. In Nevada, Republican Rep. Jon Porter will convene a town-hall teleconference today to offer advice on handling the mortgage crisis. He also is pushing legislation that would allow proceeds from tax- exempt bonds to be used for refinancing.

In Ohio, Democratic challenger Steve Driehaus is serving on a state task force on foreclosure even as he bids for a Republican-held seat. Not to be outdone, Rep. Steve Chabot, the incumbent, is working for legislation that would ease bankruptcy rules to help homeowners.

Nationally, foreclosure filings leapt 75% last year, according to RealtyTrac, a company that monitors housing. Foreclosure filings in Missouri jumped as well, especially in the Kansas City region where Mr. Graves and Mrs. Barnes are squaring off. In the sprawling Sixth District, suburban counties close to Kansas City have been hard hit. So, too, has St. Joseph, an hour's drive north along the Missouri River.

Because of the housing volatility, Treasury Secretary Henry Paulson visited Kansas City in December on a tour to promote an industry plan to help millions of Americans stuck with subprime mortgages that induced borrowers to overextend.

At about the same time, Mrs. Barnes, the 69-year-old former mayor of Kansas City, began putting a stronger focus on the economy, and housing in particular. As mayor, Mrs. Barnes worked to expand affordable housing. She says many voters either "have a mortgage they cannot afford," or "they are fearful of the impact it would have on them."

Rep. Graves, a conservative, has moved to confront the crisis, as well. In November, he backed legislation to increase oversight of the mortgage industry and curb abusive lending. Many Republicans opposed the bill, but Mr. Graves touted the measure, overcoming his normal reticence about expanding government.

"I don't think there's anything wrong with cracking down on these lenders who were preying on folks," he said. He acted again in early January, pushing an amendment helping veterans get special housing assistance.

Mr. Graves, like Mrs. Barnes, said he's hearing a lot these days about the economy. Between the high price of gas and "interest rates on the homes," voters are getting squeezed. "It's hitting people pretty hard," he said.

Not so long ago, this part of Missouri was friendly territory for Republicans. President Bush carried this district twice, and Mr. Graves has easily defended his seat since he was elected in 2000.

Mrs. Barnes, who grew up in St. Joseph, is working hard to connect with rural and urban voters. She's done more than 50 events in the district, and she got an earful about the economy in St. Joseph one snowy afternoon in January.

Realtor Lisa Rock said a growing number of homeowners are having trouble making payments. She complained the government's rescue plan isn't likely to help much. "It's not geared for the people in desperate need," she said.

Mrs. Barnes' solution: She wants to loosen lending rules to make it easier for troubled borrowers to refinance. She supported the short- term stimulus bill just passed by Congress but says the government should go further, by boosting spending on infrastructure and local governments.

Mr. Graves counters that tax cuts, not more government spending, are a better long-term solution. He also suggests cultural differences, such as abortion and gay rights, will give him an edge. Mrs. Barnes defends access to abortions and as mayor promoted tolerance on gay issues. But in elections where the economy dominates, cultural issues often fade.

Rep. Graves hasn't walked away from Mr. Bush. He invited the president to his district last month to headline a fund-raiser in Parkville, a Kansas City suburb. Mr. Bush sought to reassure voters during a public event in Kansas City that he's dealing with the economy. "We're very much engaged," he said.

Mrs. Barnes sees it differently. "We're going in the wrong direction," she said.