March 3, 2011 / 9:15 PM / 9 years ago

Republicans take steps to kill Obama mortgage aid

WASHINGTON (Reuters) - Republicans in the U.S. House of Representatives moved on Thursday to kill some of President Barack Obama’s programs to help borrowers struggling to keep their homes, an effort that is likely to fail if it reaches the Senate.

The House Financial Services Committee voted to terminate a program aimed at helping borrowers who owe more than their homes are worth and another that seeks to help unemployed homeowners.

The action clears the way for consideration of the bills by the full House next week. While House passage is likely, the legislation will probably die in the Democrat-led Senate.

Republicans delayed until next week a panel vote on the Obama administration’s signature foreclosure prevention effort, the Home Affordable Modification Program, or HAMP, and a fourth program aimed at stabilizing neighborhoods.

The panel voted 33-22 along party lines to repeal the Federal Housing Administration’s short refinance program, which lets borrowers who owe more than their homes are worth refinance into 30-year fixed rate mortgages backed by the FHA.

The FHA does not make loans directly but guarantees them against default. Only 44 borrowers have successfully obtained a new loan under the fledgling program.

The panel also voted 33-22 to kill a separate program that would extend loans to borrowers who have lost their jobs to enable them to make payments on their homes for up to two years. Congress provided $1 billion for the loan program when it rewrote U.S. financial rules last year, and the program was expected to start operating later this year.

The bills have provided a focal point for Republicans to criticize the administration’s housing policy, which has come under heavy fire from both liberals and conservatives.

The HAMP program, introduced in the spring of 2009 to much fanfare, is widely viewed as ineffective.

The administration had hoped the program would permanently lower mortgage payments for 3 to 4 million homeowners. However, to date, only slightly over 500,000 borrowers have received permanent loan modifications under the program.

More than 800,000 of the 1.5 million borrowers who started in the program have dropped out.

Democrats say something is better than nothing, and argue that the program should be fixed, not killed.

Rep. Michael Capuano, a Massachusetts Democrat, challenged lawmakers voting to kill the program to request the return of taxpayer money from homeowners who received government aid.

“If you are not willing to do that, then you are simply being hypocritical and political,” Capuano said during the often heated debate.

The debate on foreclosure prevention comes as the government and the largest U.S. banks are close to reaching what could be a multibillion dollar settlement over foreclosure abuses.

Regulators and a coalition of state attorneys general are negotiating with the biggest mortgage lenders, including Bank of America (BAC.N), JPMorgan Chase (JPM.N) and Wells Fargo (WFC.N).

These banks and other mortgage servicing firms have been accused of foreclosing on thousands of borrowers without having the necessary paperwork.

Reporting by Corbett B. Daly; Editing by Dan Grebler

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