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WASHINGTON | The House on Thursday approved an ambitious plan to rescue hundreds of thousands of homeowners at risk of foreclosure.
The plan would help them trade exotic loans with rapidly rising monthly payments for more affordable mortgages backed by the federal government.
Bucking a White House veto threat, 39 Republicans joined Democrats in supporting the bill, the centerpiece of a broader housing package that represents Washington’s most aggressive response to the nation’s housing crisis.
The measure aims to unfreeze mortgage markets by expanding the Federal Housing Administration’s reach and strengthening mortgage giants Fannie Mae and Freddie Mac. Another bill also would create a $7,500 tax credit for first-time homebuyers to try to boost sales and slow plummeting home prices.
GOP House leaders blasted the relief bill as a bailout for speculators and irresponsible borrowers. But the measure — sponsored by House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat — gained strong support from rank-and-file Republicans worried that escalating foreclosures are ruining lives and decimating neighborhoods.
“We are in a recession, and the major cause of that is the subprime crisis,” Frank said. “Diminishing the number of foreclosures is in the interest not simply of those who will avoid foreclosure, but people in their neighborhood, (in) the cities in which they are located, and the whole economy.”
Despite President Bush’s condemnation of the bill earlier this week, White House officials also seemed to leave the door open to negotiation. And in the Senate, key Republicans were working with Democrats on a similar plan.
“People are in a world of hurt. My sense is, there’s maneuvering room,” said Rep. Fred Upton, a Michigan Republican whose state has been among those hardest hit.
The borrowers most at risk of foreclosure are those who have fallen behind on their mortgage payments but cannot sell or refinance because the value of their homes has fallen. The Bush administration has tried to help by urging banks to voluntarily reduce such borrowers’ mortgage debt and by easing eligibility standards.
Frank’s proposal calls for the FHA to respond more aggressively by offering to insure mortgages for even the least creditworthy borrowers if their banks will forgive a portion of the debt and help them stay in their homes.
Under the plan, lenders would have to take a loss by letting borrowers pay off original loans with new loans worth no more than 90 percent of their homes’ new, lower value. Extra FHA fees would lower the payoff to lenders to 85 percent of current value.
Borrowers would get lower, more affordable monthly payments and an immediate equity stake. If home values rise, the plan requires homeowners to share their profits when they sell or refinance with the federal government.
The Congressional Budget Office estimates that as many as 500,000 homeowners would benefit from the program. But more than a third of those borrowers are likely to default, the agency estimates, forcing the FHA to pay off their loans and take possession of their property at a cost of $1.7 billion.
The House voted 266 to 154 to approve Frank’s plan and an array of other housing initiatives. Representatives also voted 322 to 94 in favor of an $11 billion package of housing tax measures, including the credit for first-time buyers who get a home this year. The credit would have to be repaid to the government over 15 years.
The package now moves to the Senate.
Meanwhile, congressional negotiators also announced an agreement on a $300 billion farm bill Thursday, as the White House and key conservatives continued to signal opposition to the legislation.
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