House panel passes sweeping mortgage aid bill

By Patrick Rucker

WASHINGTON (Reuters) - The House of Representatives Financial Services Committee on Thursday approved a sweeping bill to enable the government to finance $300 billion in distressed mortgages with the aim of helping 2 million homeowners.

The legislation, approved by a 46-21 vote, would provide an infusion of capital and new mandate for the Federal Housing Administration to guarantee home loans when a property has sunk in value since the mortgage was written.

Lenders would have to erase a portion of the original loan in order to secure a government guarantee on future payments.

The plan would "put liquidity back in the market and not interfere with the market, I think, but help restore (it)," committee Chairman Barney Frank told reporters after the vote.

The committee's action sends the bill to the full House, which is expected to vote on it next week. A Senate panel is to begin drafting a companion measure on Tuesday.

Declining home values and rising foreclosures over the past 12 months have darkened the mood of consumers and pushed the economy toward recession. This week, separate reports showed consumer confidence was at a five-year low in April, while home prices took a record drop in February.

The new FHA program, according to Frank, a Massachusetts Democrat, could cost the federal government up to $6 billion, but save 2 million homeowners from foreclosure.

Democrats, who hold the majority in the House, have said they want to debate several housing measures next week.