Senate passes FHA subprime help

WASHINGTON (Reuters) - The Senate on Friday overwhelmingly passed legislation that would expand the nation's largest federal homeownership program in a move that could help struggling subprime borrowers avoid foreclosure.

The bill would loosen underwriting standards at the Federal Housing Administration so that the program can help 200,000 troubled borrowers save their homes, according to the overseers of the program.

The FHA is a Depression-era program conceived in 1934 that was designed to insure the mortgage payments of low-income borrowers who might have trouble winning a loan.

The House of Representatives has already passed its version of FHA reform, and now lawmakers will take the two versions of the bill to a conference where differences are worked out. The bill will then be presented to U.S. President George W. Bush to be signed into law.

Supporters of reform have said the program can be retooled to save hundreds of thousands of borrowers from foreclosure as the current mortgage crisis takes hold.

"HUD's Federal Housing Administration can provide many homeowners with a fairer, more affordable, and more sustainable alternative to costly subprime loans," Department of Housing and Urban Development Alphonso Jackson said in a prepared statement.

As envisioned, the FHA reform legislation would raise the current loan limit from $362,000 to at least $417,000, which is the same cap on loans that binds mortgage finance companies Fannie Mae and Freddie Mac.

The final vote was 93 lawmakers in favor and one against.

(Reporting by Patrick Rucker; Editing by Chizu Nomiyama)