Senate votes to expand mortgage program

By Patrick Rucker

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

The bill, which passed on a 93-1 vote, would loosen underwriting standards and raise the size of loans that may be insured by the Federal Housing Administration.

The FHA has said the changes should enable it to help 200,000 troubled borrowers save their homes.

The House of Representatives had already passed its own version of FHA reform. Now, a compromise between the two bills needs to be hammered out before a final vote in each chamber puts it before U.S. President George W. Bush to sign into law.

During a five-year housing boom that ended in 2005, many borrowers turned to the easy terms and quick credit of subprime mortgages that have a built-in interest-rate spike. Many of these borrowers risk losing their homes as rates reset.

Supporters of the reform legislation say many of those distressed borrowers could save their homes if they are shepherded into fixed-rate FHA loans.

Alphonso Jackson, secretary of the U.S. Department of Housing and Urban Development, said the FHA could provide many homeowners with "a fairer, more affordable and more sustainable alternative to costly subprime loans."

More than 1.8 million borrowers are set to see their mortgage costs spike before the end of 2008. Mounting defaults have already led to a tightening of credit worldwide that some analysts fear could push the U.S. economy into recession.