The House Financial Services Committee approved legislation today that would allow the Federal Housing Administration to insure up to $300 billion in troubled subprime loans, providing liquidity to a home mortgage market that has been battered by a wave of foreclosures. By a 46-21 vote, the committee approved the measure, which will be considered on the House floor next week, along with an $11 billion housing tax package and another bill to provide $15 billion so cities can purchase foreclosed homes. Financial Services Chairman Barney Frank contends his bill will help stabilize the shaky mortgage market, which investors have fled because of rising defaults and falling prices that leave borrowers owing much more than their houses are worth.
The measure would require lenders who want to participate in the program to reduce the amount of the original note to as little as 85 percent of the home's appraised value. In exchange, FHA would insure a new loan at a fixed rate that the borrower could afford. More borrowers would be eligible under the bill than under current FHA standards by allowing those with higher debt levels to participate. Frank has estimated the bill will cost $3 billion to $6 billion because the program will bring in revenue, due in part to its requirement that the federal government share in any net proceeds from the sales of properties and an annual fee paid by the borrower not to exceed 1.5 percent of the loan balance.
During the weeklong debate, Republicans failed to make any significant changes to the bill. One reason was that some Republicans from the industrial Midwest and Sunbelt were sympathetic to the Frank bill because their districts have suffered under high foreclosure rates. Ten Republicans voted for the measure. The Bush administration has expressed its opposition to the legislation, calling instead for a more limited, voluntary program that it has implemented with the lending industry. Critics have complained the Bush effort has helped only a few thousand who have fallen behind on their payments. But the White House has not explicitly threatened a veto in large part because the bill will ultimately be combined with a measure that would overhaul the entire FHA program, and possibly another bill that would revamp Fannie Mae and Freddie Mac. Both are top priorities for the White House, which has had few domestic accomplishments under the Democratic Congress. The Senate Banking Committee will mark up its similar FHA refinancing bill Tuesday.
This article appears in the May 3, 2008 edition of National Journal Daily PM Update.