Frank FHA plan won't help many subprime loans-UBS

NEW YORK, March 26 (Reuters) - Proposed legislation aimed at refinancing troubled mortgages may shut out two thirds of the loans it aims to fix due to restrictions on borrower eligibility, according to UBS Securities.

The plan led by Barney Frank, chairman of the House of Representatives Financial Services Committee, would permit the Federal Housing Administration to offer $300 billion more in new guarantees to refinance distressed mortgages that banks and mortgage holders have agreed to write down.

But terms that borrowers must meet, such as caps on loan size and debt-to-income levels, limit the scope of the plan, the analysts, led by Laurie Goodman, wrote in a research note dated Tuesday.

About $73 billion in subprime mortgages would benefit from the program based on the UBS analysis on loans contained in securities. Including loans not in securities, the total rises to $104 billion, or about 463,000 loans, UBS said.

The Frank plan and another submitted by Congressman Christopher Dodd appear to be on a "fast track" in Congress despite opposition to homeowner bailouts by the Bush Administration, UBS said.

While a bailout is necessary to buoy the housing market, "we feel many authors of these proposals fail to appreciate the difficulty in meeting" key criteria, such as excluding 'bad' homeowners that exaggerated income, had faulty appraisals or lied about the use of the property," they wrote.

"If all the 'bad' borrowers are eliminated, the program will not help enough homeowners to significantly impact home prices," they added.

The number of loans eligible for Frank's program is probably even lower than estimated because other factors, such as the requirement that borrowers be current in payments for the past six months, were not yet factored into calculations, the UBS analysts said. (Reporting by Al Yoon; Editing by Andrea Ricci)