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    Senate Passes Bill to Aid Homeowners
    The Associated Press

    Friday 14 December 2007

Legislation would allow FHA to guarantee refinanced loans for delinquent borrowers.

    Washington - Hundreds of thousands of Americans facing foreclosure because of the ballooning interest rates on their variable-rate subprime mortgages would get help from the federal government under legislation that senators overwhelmingly approved Friday.

    The legislation, approved 93-1, is the Senate's first attempt to deal with the looming subprime mortgage crisis through stand-alone legislation. Republican Sen. Jon Kyl was the lone senator to vote against the bill.

    The bill would allow the Federal Housing Administration to guarantee refinanced loans for tens of thousands of borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels.

    The Senate bill raises the maximum mortgage the FHA can insure in high-cost areas from $362,790 to $417,000, the level of loans backed by Fannie Mae, a government-sponsored private lending corporation, and Freddie Mac, a congressionally chartered stockholder-owned lending corporation.

    Around 2 million to 2.5 million adjustable-rate mortgages are scheduled to "reset" this year and next and will jump from the "teaser" rates of the first two or three years to much steeper rates that could cost borrowers their homes. Many thousands of homes have been lost to the process since subprime loans taken out during a housing boom of the early 2000s began going to higher rates in 2005.

    The wave of resets could crest during the presidential and congressional election campaigns next year, and the issue has brought politically charged debate in recent weeks over possible responses by the government.

    "It is good before the Christmas season we have made a down payment on the solution to this problem," said Republican Sen. Mel Martinez. "The government will not be able to fix all of the problems out there in the credit community. However, this is a first step, a good first step, and a good bipartisan step."

    The legislation will help the Federal Housing Administration "be a source of salvation for those families who were tricked into unaffordable loans," said Democratic Sen. Charles Schumer.

    President George W. Bush announced an agreement with mortgage companies last week to freeze interest rates for certain subprime mortgages for five years. Democrats in Congress criticized the White House plans, however, as too limited.

    The FHA has been pushing Congress for years for the ability to guarantee more loans. The agency, which has provided mortgage insurance since 1934, currently insures 3.7 million mortgages.

    Critics say the size of mortgages the government agency can back is often too small to attract borrowers in expensive areas such as California and the Northeastern United States. As a result, FHA's share of the single-family mortgage market has dropped to about 4 percent, down from 19 percent more than 10 years ago.

    The House passed similar legislation in September, although representatives wanted to raise the caps to as much as $729,750 in high-cost areas. The two chambers must now agree on specifics of the legislation before sending it to Bush to sign into law.

    The Bush administration praised the Senate bill and urged Congress to hurry and agree to a compromise.

    "I strongly urge the House and Senate to send the president a bill he can sign before the end of the year," Housing and Urban Development Secretary Alphonso Jackson said. "Keeping a roof over the heads of families is the best gift Congress could give the American public this year."