Congressional panel to retool homeowner rescue

WASHINGTON (Reuters) - Back when $300 billion seemed like a lot of money, Rep. Barney Frank pushed through Congress one of the first attempts to rescue the U.S. housing market -- a program that has since fallen far short of its goals.

In July 2008, the Hope for Homeowners Act was approved amid promises it could help 400,000 distressed mortgage borrowers. That was months before the government's $700 billion bank bailout, or a possible $900 billion economic stimulus.

Launched on October 1, the Hope for Homeowners program created a $300 billion fund under the Federal Housing Administration to help over-burdened homeowners switch into more affordable mortgages.

But as of Monday, only 451 applications had been submitted to the FHA for participation in the program and only 25 loans had been closed under it, said an FHA spokesman.

Now Frank is going back to the drawing board. In two meetings on Tuesday and Wednesday of the House of Representatives Financial Services Committee that he chairs, the Massachusetts Democrat will try to tweak the program that Congress approved only after months of debate and compromise.

"We want to fix the Hope for Homeowners program that we passed. It was too tight," he told reporters after talks on Monday with top Obama administration officials.

Frank said he talked on Monday with Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke and Lawrence Summers, head of the National Economic Council.

"We talked about the importance of getting set on the regulatory restructuring," Frank said, referring to an effort just getting under way to overhaul financial oversight amid a crisis in capital markets and a deepening recession.

He said the Obama administration is "working very hard on foreclosure relief," or finding ways to reduce the high rate of people losing their homes that has followed on from a steep slump in home prices, tighter credit and rising joblessness.

In addition to dealing with Hope for Homeowners, Frank also hopes to win committee passage this week of a measure to provide legal safe harbor to mortgage servicing companies seeking to modify distressed home loans. The bill would try to address a long-standing obstacle to getting the terms of more mortgages changed so families can keep their homes.

He also said the committee will consider making permanent October's temporary increase in federal bank deposit insurance to $250,000 per customer account.

(Additional reporting by Karey Wutkowski; Editing by Andre Grenon)