by Terry Kivlan
WASHINGTON (May, 30, 2008) - The House Financial Services Committee easily approved the Democratic plan to staunch the foreclosure hemorrhage by letting the Federal Housing Administration insure up to $300 billion in new mortgages for troubled borrowers in cases where lenders agreed to reduce the amount of the original loan to 85 percent of a home’s appraised value.
With 10 of the panel’s 33 Republicans crossing over to support it, the legislation (H.R. 3850) cleared the committee 46-21 [Vote 4]. A vote on the voluntary two-year program is expected in the full House next week.
House Financial Services Chairman Barney Frank, D-Mass., the architect of the package, said the committee’s vote should result in a “pause” in the pace of foreclosures. “This should be a signal for mortgage services to slow down and that help is on the way,” he told reporters after the markup
The panel’s action concluded two days of debate and votes over the past week during which Democrats defeated a series of Republican amendments intended either to de-rail the legislation or to impose additional requirements on borrowers and lenders. In today’s votes, the committee rejected 29-28 [Vote 1] an amendment from Rep. Peter Roskam, R-Ill., to make lenders liable for refinanced mortgages if they failed to provide the FHA with documentary verification of the information on loan applications.
The panel also defeated 36-28 [Vote 2] an amendment from Rep. Jeb Hensarling, R-Texas, to limit the program to families with less than 140 percent of the median income in the area where they lived.
During the debate on the measure yesterday, Hensarling contended that without such a means test the program could end up bailing out wealthy families that can’t meet their mortgage payments on expensive homes due to a temporary cash shortage. Frank said such a scenario was unlikely under the bill because it contained language restricting coverage to homes with values of less than 125 percent of area medians.
Frank contended that language raising the stakes for lenders and tightening eligibility standards for borrowers would diminish participation in the program and erode its economic healing power.
In another roll call today, the committee rejected 37-29 [Vote 3] and amendment from Rep. Tom Price, R-Ga., to apply pay-go-rules to the program.
Under the Frank bill, borrowers with high debt-to-income ratios would be eligible for the aid as long as they had made six months of timely payments on their old mortgage.
Lenders would work with the FHA to calculate the new fixed-rate loans for homes. Borrowers would have to pay a premium price for FHA housing insurance and commit to sharing with the agency at least 3 percent of any profit from the subsequent sale or refinancing of their homes. To deter “flipping,” the bill would award to the agency all the proceeds of a sales or refinancings that occurred within a year.
Frank has acknowledged that the program would benefit some irresponsible borrowers but has argued that it would not be a “free ride” because if a borrowers defaulted again the FHA could take the home.
Republicans contended that the program would reward not only irresponsible buyers but also speculators and predatory lenders, and set the stage for the emergence lo a new housing bubble.