Housing agency drafts mortgage bailout plan: sources

By Patrick Rucker

WASHINGTON (Reuters) - The leading U.S. housing agency has drafted a foreclosure prevention program that could work in tandem with plans created by leading Democratic lawmakers, but it still needs the blessing of the Bush administration, sources familiar with the plan said Thursday.

The Department of Housing and Urban Development wrote a plan to expand the Federal Housing Administration and sent it to Bush officials about a week ago, but it has not yet won an endorsement, the mortgage finance industry sources said.

Borrowers who are extremely delinquent in their mortgage payments and those who have seen their homes decrease in value since their original loan was written would be eligible for refinancing through the government-backed program, said the sources familiar with the plan.

A spokesman for the department, which administers FHA, would not comment on any possible proposal. Other administration officials declined to comment on future plans for the nation's largest federal homeownership program.

While details of the plan remain sketchy, in recent days Bush administration officials have given clues about the next steps to address the current foreclosure crisis.

Treasury Secretary Henry Paulson said in a speech on Wednesday that HUD is working on a plan to expand FHA and help borrowers who "have negative equity in their homes."

In an interview published by the Washington Times last week, HUD Secretary Alphonso Jackson himself said he had pitched a plan to the White House that would help borrowers who had seen their home values drop.

Sources said the plan to expand FHA is now being mulled by the Office of Management and Budget, which is the White House budget office.