Housing bill helpful but no panacea

By Patrick Rucker and Kevin Drawbaugh - Analysis

WASHINGTON (Reuters) - Congress looks set to throw the U.S. housing market a multibillion-dollar lifeline that may demand more sacrifice than mortgage lenders and investors are willing to make to save distressed borrowers from foreclosure.

The plan would create a fund to insure up to $300 billion in home loans. It has cleared the House of Representatives and lawmakers expect it to be ratified by the Senate within weeks. White House approval looks possible.

About 500,000 borrowers could be saved from foreclosure by refinancing into government-backed loans under the House-passed plan, the Congressional Budget Office estimates. The CBO has not yet estimated the scope of the Senate's plan.

Supporters say the government must vacuum up a large share of troubled loans to stabilize a market in which home prices are falling and foreclosures are on the rise.

But even if the sweeping initiative wins a needed endorsement from President George W. Bush, serious questions would remain.

Would industry buy into it? Would it help hundreds of thousands of people? Would it "put a floor under home prices," as the politicians backing it promise?

"Even the 500,000 is an educated guess ... It is going to require servicers and lenders to agree," said Robert Litan, senior fellow at the Brookings Institution, a think tank.

"It's incorrect to say it will put a floor under housing prices ... Housing prices are going to continue to decline. If this bill is passed, it might be at a slower rate," he said.