FHA reform for home loans likelier after Bush speech

By Patrick Rucker - Analysis

WASHINGTON (Reuters) - A U.S. federal program that could help bailout troubled subprime borrowers is likely to be passed by Congress now that President George Bush has endorsed key elements of a reform package.

On Friday, Bush promised to help less creditworthy subprime borrowers refinance into new loans by relaxing some aspects of the Federal Housing Administration's loan insurance for high-risk home buyers.

The Federal Housing Administration, set up after the 1930s's depression, helps borrowers win favorable loan terms by guaranteeing mortgage payments to lenders.

In a speech delivered in the White House Rose Garden, Bush endorsed his administration's plan to help less creditworthy borrowers by lowering the required downpayment for FHA loans and raising the limit on mortgages that would be eligible.

Those provisions were part of a reform effort that passed the U.S. House of Representatives last year but got bogged down in the Senate.

Through the spring, the federal department of Housing and Urban Development has tried to sell FHA reform to lawmakers and the House is due to vote on the issue when lawmakers return from their summer break.

Some Senate Republicans have resisted FHA reform but Christopher Dodd, the Democratic chairman of the Senate Banking Committee, has said that passing legislation is a priority.

The urgency of the ongoing U.S. mortgage market crisis and Bush's endorsement on Friday means the reform is likely to pass soon, said Howard Glaser, a mortgage analyst based in Washington and former HUD official.