The House Financial Services Committee continued work Wednesday on a $300 billion emergency housing loan insurance package after panel Democrats defeated a series of Republican amendments that GOP members said were needed to lessen the risk to taxpayers.
Committee members are scheduled to resume their work this morning, with Financial Services Chairman Barney Frank saying he hopes to complete action today.
In one key vote Wednesday, the committee rejected, 38-31, a substitute plan offered by Rep. Judy Biggert, R-Ill., to allow the Federal Housing Administration to negotiate 40-year mortgages.
Biggert argued the proposal would help troubled borrowers at no risk to taxpayers by enabling the banks to stretch out and reduce payments. Frank said he agreed with the substance of the amendment but could not support it because it was offered in a way intended to kill the Democratic plan.
In other party-line votes, the committee defeated amendments to sunset the program after two years and limit the refinancing aid to low- and moderate-income homeowners and those who had made at least 12 consecutive monthly mortgage payments.
But it did approve an amendment sponsored by Rep. Jim Marshall, D-Ga., allowing the issuance of FHA-backed refinanced mortgages to borrowers in bankruptcy proceedings.
Frank's proposal would let the FHA insure up to $300 billion in refinanced mortgages for distressed borrowers in cases where the lenders agreed to reduce the amount of the original loan to as little as 85 percent of the home's appraised value.
The new loans would be restricted to distressed owners who live in their homes and devote at least 35 percent of their pretax income to mortgage payments.
Under the bill, lenders would work with the FHA to calculate the fixed-rate loans of no more than 90 percent of the homes' value.
Borrowers would be eligible for the two-year program even if they carried a relatively high debt load -- as much as 50 percent of income instead of the standard maximum of 43 percent -- as long as they had made at least six months of timely payments on their original mortgage.
Frank acknowledged the program would bail out some irresponsible borrowers but argued it was needed to diminish foreclosures and prevent it from causing a severe recession.
Republicans contended the program would reward irresponsible buyers, lenders and speculators at the expense of prudent buyers and lenders, and set the stage for the emergence of another housing bubble later on.
This article appears in the May 3, 2008 edition of NJ Daily.