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.

Separately, the Senate approved a bill to give tax relief to consumers who restructure their home loans to avoid foreclosure or who have lost their homes to foreclosure.

When a lender forgives or cancels a mortgage, under current law the financial relief is treated as income and the homeowner has to pay taxes on it.

"As these families struggle to reduce their home loan debt, they're hit by taxes due to debt forgiveness from the lender. It's right to offer them tax relief," said Sen. Charles Grassley.

The House approved the plan in October, but the Senate modified that bill to end the financial relief after three years. The altered measure now goes back to the House for approval.