Mortgage experts push new home-saving programs

By Patrick Rucker

WASHINGTON (Reuters) - Many plans in Washington that aim to save troubled borrowers fall short of halting a rising tide of home foreclosures, according to some analysts who are pushing novel ideas to help borrowers keep their homes.

The rate of home loans in foreclosure rose to a record high in the second quarter and loan failures are expected to increase into early next year, the Mortgage Bankers Association said earlier this month.

While soaring defaults have prompted lawmakers and the Bush administration to propose foreclosure-prevention plans, some experts say those plans lack needed imagination and are pushing ideas of their own.

One plan would give homeowners who cannot make mortgage payments the right to remain in their homes as a renter.

While this would mean occupants would not enjoy the benefit of any future home price gain, it would save them the cost and disruption of moving and preserve the integrity of the neighborhood, said Dean Baker, a director of the Center for Economic and Policy Research in Washington.

"There can be a lot of secondary costs of foreclosure. If you keep the home occupied, it can prevent a downward spiral for the neighborhood that you might otherwise see," Baker said.

Late last month, President George W. Bush loosened standards for the Federal Housing Administration, which guarantees loans to needy borrowers, with the aim of saving more troubled borrowers from foreclosure. Now, homeowners who have missed several mortgage payments can still qualify for loan guarantees.

The FHA reforms should help 240,000 homeowners win more favorable loan terms next year and several lawmakers have their own plans to extend federal programs. The effort is particularly aimed at subprime borrowers who won a home loan despite damaged credit.