Published: May 07, 2008 10:29 am         

Congress weighs housing rescue package

WASHINGTON — A broad housing rescue package aimed at preventing foreclosures would have the government step in to insure up to $300 billion in new mortgages for struggling homeowners.

The plan, designed to stabilize a key sector of the shaky economy, is set for a House vote Wednesday. It would let the Federal Housing Administration insure more affordable fixed-rate loans for borrowers currently too financially strapped to qualify.

The White House says President Bush would veto the measure, calling it a burdensome bailout that would open taxpayers to too much risk. That’s despite Democrats’ attempts to attract Republican support by including a grab-bag of measures Bush has called for.

They include legislation to overhaul the Federal Housing Administration, the Depression-era mortgage insurer, and to more tightly regulate Fannie Mae and Freddie Mac, the government-sponsored companies that finance home loans. Also part of the plan is a measure, which Bush has repeatedly requested, allowing state and local housing finance agencies to use tax-exempt bonds to refinance distressed subprime mortgages.

Its main element, written by Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, is designed to help roughly 500,000 borrowers at a cost of $2.7 billion over the next five years. Under Frank’s bill, the FHA would relax its standards to let debt-ridden homeowners refinance into more affordable, fixed-rate mortgages if their lenders agreed to take substantial losses on the original loans.

Borrowers would have to show they could afford to make payments on the new mortgages. They would have to share with FHA at least half of their proceeds if they profited from selling or refinancing again.

Frank, working closely on his plan with Treasury Secretary Henry M. Paulson and Federal Reserve Chairman Ben Bernanke, has picked up some Republican support, especially among lawmakers representing areas hit hardest by the housing crisis.

But GOP leaders strongly oppose the bill, which they say would help reckless borrowers who overextended themselves, unscrupulous lenders, and investors who tried to game the market at the expense of renters and homeowners who made wiser choices.

The plan is to be combined with $11 billion in housing tax breaks, including a $7,500 credit for first-time home-buyers that would function like a zero-interest government loan, to be paid off over 15 years.