By , Associated Press | April 9, 2008
WASHINGTON — The Bush administration is expanding a government program to help homeowners head off foreclosure as it scrambles to counter Democratic calls for a broader federal housing rescue.
The plan would enable more low- to moderate-income homeowners to refinance into mortgages with monthly payments they can afford, while lenders would take a loss on the loans.
It is a more modest version of a concept Democrats have recently been pushing to respond to the mortgage mess, which would have the Federal Housing Administration back restructured loans for distressed borrowers. The administration's idea, however, would reach far fewer borrowers than the Democrats' proposal and would be financed by homeowners' mortgage insurance premiums rather than taxpayer dollars.
The Financial Services Committee chairman, Rep. Barney Frank, Democrat of Massachusetts, opened a hearing on his broader plan today noting sarcastically that the timing of the Bush administration's proposal was a "remarkable coincidence." Still, he said the plan's release was a recognition that some government action was needed, and that it should start with lenders taking losses on distressed loans.
"Anyone who thinks we should do nothing," Mr. Frank said, "will have to deal with me and the Bush administration."
Mr. Bush's plan would expand a program created last year, known as FHASecure, designed to help homeowners who have some equity in their homes and have kept up with their mortgage payments but are facing a hefty rate hike refinance into a government-insured fixed-rate loan.
Democrats say the administration has done too little for struggling homeowners and doesn't reach the vast majority of distressed borrowers.
Under the expansion, FHA would insure new mortgages if a lender agreed to take a loss on some of the loan principal, up to 90% or 97% of the new value depending on the borrower's financial situation. Homeowners could be eligible for the refinanced loans even if they had made a couple of late payments.
"Our common ground is to help FHA become a safe harbor for many Americans," the FHA commissioner, Brian Montgomery, said at the hearing.
FHA Secure has already helped nearly 150,000 borrowers, and with the expansion it expects to help a total of about 500,000 by the end of the year, a White House spokeswoman, Dana Perino, said.
"The expansion will allow the program to insure loans for Americans who may have been late with some payments and are facing interest rate resets, but who are otherwise creditworthy — with verifiable income, decent credit histories and living in their homes," Ms. Perino said.
She said the proposal "is not a silver bullet that will solve all the problems in housing, but it will help some additional people stay in their homes and that's something the president wants to see."
Mr. Montgomery raised serious concerns about Mr. Frank's bill, which would have the FHA insure up to $300 billion in restructured loans for homeowners facing foreclosure. He said the measure was an overly rigid approach that would put the government at inappropriate risk.
The Senate, meanwhile, is working to quickly pass a grab bag of measures aimed at helping homeowners and businesses weather the housing crisis.
Large tax breaks for homebuilders and credits for people who buy foreclosed properties, as well as $4 billion in grants for communities with the highest foreclosure rates to buy and rehabilitate foreclosed properties, were centerpieces of the bipartisan measure set for a Senate vote today.
Proponents call the plan an important first step in addressing the nation's economic woes, but some lawmakers in both parties are cool to the bill, saying it would do little to help people staring at foreclosures or to bolster the shaky housing market. Its diverse critics include Mr. Bush, whose spokesman said it would do more harm than good, and House Speaker Pelosi, Democrat of California, who wants a measure more targeted to helping homeowners.
The chairman of the House Ways and Means Committee, Rep. Charles Rangel, scheduled a vote in his panel today on a rival plan that instead would steer tax breaks toward first-time home-buyers and investors in low-income rental housing. That bill likely will be paired with Mr. Frank's broader housing rescue package, expected to see a vote in May.
Mr. Frank was hearing from regulators and economists today on his plan. It would insert the government squarely into the middle of the mortgage mess, with taxpayer dollars at risk should homeowners default on the new loans. It would require lenders to write down large losses on distressed mortgages and help only those borrowers who could show that they were able to make payments on new loans.
The plan already is under fire from Republicans who characterize it as a massive government bailout.
The minority leader of the House, John Boehner, Republican of Ohio, said Congress should "work to help the innocent victims of the housing crisis, without providing a taxpayer-funded bailout to speculators, scam artists or recklessly irresponsible borrowers."
