Democrat home rescue plan foresees $6 bln losses
WASHINGTON (Reuters) - The U.S. government should expect to lose up to $6 billion if a leading Democratic lawmaker's mortgage rescue plan is adopted, according to a Congressional memo citing non-partisan research.
The legislation introduced by Rep. Barney Frank, chairman of the House Financial Services Committee, would retool the Federal Housing Administration so that it could soak up more troubled loans.
As outlined, the bill would allow the FHA to finance $300 billion of home loans and up to 2 percent of that amount is expected to be lost, according to a memo produced by Frank's office that cites research from the non-partisan Congressional Budget Office.
The Bush administration opposes Frank's sweeping plan to expand the FHA and has pitched its own plan to retool the largest government-backed homebuyer aid program.
"Creation of a new fund and board ... is redundant and unnecessary because the existing framework could achieve the same goal," Brian Montgomery, the FHA chief told the Senate Banking Committee at a hearing on Wednesday.
The Federal Housing Administration operates within the Department of Housing and Urban Development, which is a cabinet-level agency.
Both the Frank plan and the initiative outlined by Montgomery would require mortgage lenders to waive their rights to a large share of the original loan amount.
The number of homeowners defaulted on mortgages has swelled during the past 12 months, costing banks some $200 billion in write-downs while pushing the economy toward a recession.
Montgomery has said he objects to the Frank plan, in part, because it would allow the federal government reap a windfall if home prices increase after a property has been refinanced.
As the Frank memo explains, "the government will retain a share of future home-price appreciation to help defray the government's costs and prevent unjust enrichment (e.g., borrower flipping)."
Frank's plan would only be open to those who live in the property to be refinanced and originated their mortgage before the end of last year.
(Reporting by Patrick Rucker, Editing by Tom Hals)
