The Democratic-led House of Representatives on Thursday voted to authorize the government to finance distressed mortgages to steer 500,000 American homeowners away from foreclosure.
It was unclear whether Democrats in the Senate could muster enough support to pass a similar version of the bill, which President George W. Bush has threatened to veto.
The White House, Treasury Department, federal banking regulators and lawmakers have put forward a variety of plans during the past year to help homeowners with adjustable interest rate subprime mortgages who are facing foreclosure. The actions and proposed actions include the following:
The broad package approved by the House would retool the Federal Housing Administration program to guarantee up to $300 billion in home loans when a property has declined in value. Lenders would have to erase a portion of the original loan to secure a government guarantee on future payments by a homeowner. It would also give first-time home buyers a tax credit of up to $7,500, let states issue $10 billion in tax-exempt bonds to refinance loans and create a tougher regulator for Fannie Mae and Freddie Mac.
The Congressional Budget Office estimated the bill could help as many as 500,000 homeowners and would cost the government an estimated $2.7 billion.
The Senate Banking Committee is expected to meet next week to draft a House companion bill.
In April, the Senate approved a $15 billion bill offering tax breaks for home builders and some assistance for distressed homeowners. The tax break allowing the industry to count current losses against taxes from prior profitable years was designed to placate the National Association of Home Builders, which halted all congressional campaign contributions when a similar tax break was dropped from an economic stimulus package approved by Congress last winter. The Senate bill also would authorize $10 billion more in revenue bonds for mortgage financing.
FANNIE MAE, FREDDIE MAC
A $168 billion economic stimulus package signed into law in February 2008 raised the limit on mortgages financed by Fannie Mae and Freddie Mac to $729,750 through the end of the year.
The federal regulator of Fannie Mae and Freddie Mac in March 2008 lowered capital requirements, allowing them to pump up to $200 billion into the U.S. mortgage market. The two government-sponsored enterprises became the biggest buyers of mortgage-backed securities and new home loans after credit markets dried up. Financial services companies worldwide have written off more than $330 billion in soured mortgage securities.
Fannie Mae lost $2.51 billion in the 2008 first quarter and said it plans to raise $6 billion in extra capital.
The Federal Housing Administration, which has traditionally served low-income borrowers, initiated the FHA Secure program in August 2007 to let homeowners in default due to interest rate resets refinance their loans. In April, the Bush administration approved expanding the program to have the FHA underwrite loans that have sunk in value if the lender agrees to write down the principal. The program was expected to help about 500,000 borrowers by the end of 2008.
The FHA opposes House legislation to expand the agency's authority, saying that could force the FHA to take on loans destined for default.
The Bush administration in February 2008 announced six major lenders from the Hope Now alliance, including Bank of America, JPMorgan Chase and Citigroup, would suspend foreclosure for some borrowers more than 90 days behind in their mortgage payments. The plan was touted as a way to buy time for borrowers and lenders to work out more affordable loan terms although lenders already have wide latitude to stall foreclosures.
HOPE NOW ALLIANCE, RATE FREEZE
The Hope Now alliance, which includes big lenders such as Wachovia Corp, HSBC and Countrywide Financial, was created by the Bush administration in October 2007 to help hard-pressed homeowners. Since then, some 1.3 million home loans have been renegotiated, according to the alliance.
President Bush announced in December 2007 that major lenders in the Hope Now alliance would temporarily freeze interest rates on certain subprime loans scheduled to reset interest rates at a higher level over the coming 2-1/2 years. The plan was designed to help troubled borrowers with loans originated between January 1, 2005 and July 31, 2007.
FEDERAL RESERVE PROPOSAL, DISCOUNT WINDOW
The Federal Reserve Board in December 2007 proposed new regulations that would require lenders to determine that a borrower can afford a mortgage before making a loan. The regulations would also require lenders to provide details to consumers about their mortgage brokers' compensation and to clearly detail charges for property tax and insurance. Under pressure from the mortgage industry, the Fed has lately dragged its feet on the proposal.
The Fed took the unprecedented step in March 2008 of opening its discount borrowing window to investment banks after Bear Stearns collapsed amid large subprime mortgage losses and falling confidence in the company. The central bank, which guaranteed $29 billion of Bear Stearns' assets, also began overseeing all big U.S. investment banks.
Banking regulator Federal Deposit Insurance Corp in April 2008 proposed the Treasury Department lend money to homeowners who owe more than their homes are now worth. The plan would let borrowers cut the principal on their mortgage by up to 20 percent, then wait up to five years before beginning to repay the government loan. The plan would require legislative approval but has not been backed by any influential lawmakers or by the Bush administration.
The Office of Thrift Supervision, which regulates savings and loans, in February 2008 proposed to create "negative equity certificates" to help borrowers stay in their homes when they have negative equity. Lenders would refinance a home at the current value but preserve the right to share in future home price gains. The proposal received little initial support from the Bush administration or senior lawmakers.
(Compiled by Julie Vorman)