WASHINGTON (Reuters) - A U.S. House of Representatives panel that writes rules for the financial services industry is due on Thursday to outline a new federal program that could buy $300 billion in troubled home loans.
The plan conceived by Rep. Barney Frank, chairman of the House Financial Services Committee, would give the Federal Housing Authority fresh funds and a new directive to catch home loans headed for foreclosure.
As outlined, the bill would allow the FHA to finance $300 billion of home loans and up to 2 percent of that amount is expected to be lost, according to a memo produced by Frank’s office that cites research from the non-partisan Congressional Budget Office.
The Bush administration opposes Frank’s sweeping plan to expand the FHA and has pitched its own plan to retool the largest government-backed homebuyer aid program.
Since his fellow Democrats hold a majority on the panel, Frank’s version of legislation is likely to pass largely intact although members will try to add their own provisions to the bill during Thursday’s debate.
On Wednesday, Frank said that he does not expect lawmakers to finish drafting the bill on Thursday and that he has blocked out time next Wednesday to continue the work.
The Federal Housing Administration was created during the Great Depression of the 1930s to give low-income families help buying a home. Borrowers who use the program can win a cheaper loan because the FHA guarantees monthly payments.
The wave of failing home loans has grown over the past 12 months, so far costing banks an estimated $200 billion in write-downs while pushing the economy toward a recession.
The mortgage crisis began with high-cost, “subprime” available to borrowers despite damaged credit.
Proponents of comprehensive reform say that only a bold government intervention can steer the U.S. economy away from a prolonged crisis.
On Tuesday, the leading Republican on the panel said he would advocate for a modest liberalization of the FHA meant to help current borrowers.
The plan from Spencer Bachus, an Alabama Republican, would expand “participation in a program that helps subprime borrowers transition into more sustainable FHA loans,” the Alabama Republican said in a statement.
Reporting by Patrick Rucker, Editing by Gary Crosse