Democrats propose crackdown on housing lenders

WASHINGTON (Reuters) - Legislation to crack down on lenders, curb record high U.S. foreclosure rates and stabilize the housing market was introduced on Wednesday by four U.S. Senate Democrats, including the chamber's assistant majority leader.

"Voluntary efforts to keep families in their homes have failed," said Dick Durbin, the Senate's No. 2 Democrat.

"This bill will force lenders to modify qualified mortgages, create a homeowners assistance program and give states a bigger role in mediation efforts," Durbin said.

The Preserving Homes and Communities Act of 2009 would not only apply a sterner hand to lenders but also provide billions of dollars in federal relief to borrowers and oblige banks to evaluate qualified homeowners' loans and offer modifications.

It would authorize $6.3 billion in funding to states to offer homeowners grants or subsidized loans, and another $80 million in federal matching funds for states and localities to create mandatory mediation programs.

It would also provide $1 billion for the building, preservation and rehabilitation of affordable housing and authorize $5 million to develop a single data base to better monitor the mortgage markets.

Foreclosures jumped 16 percent during the second quarter of this year, accounting for 2.9 percent of all serviced mortgages, U.S. bank regulators reported on Wednesday.

"The number of foreclosures continues to rise at an alarming rate on pace to surpass last year's foreclosures by a third," said Senator Jack Reed, chief sponsor of the legislation offered on Wednesday.

"My bill provides targeted relief to qualified homeowners so that more families can keep their homes, protect communities from suffering even greater financial losses, and sets us on the path to stabilizing the housing sector as a foundation for lasting economic recovery," Reed said.

The other co-sponsors of the legislation in the Democratic-led Senate were Senators Sheldon Whitehouse and Jeff Merkley.

"It's long past time for the Senate to step up to keep families in their homes and to help lead the way toward economic recovery," Dubin said. "This bill will help achieve those goals."

(Editing by Leslie Adler)