| Homeowner Financial Assistance |
| By Credit Federal |
Published
05/22/2008
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Home Loan
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Homeowner Assistance Plan for Mortgage Crisis
Where will money for homeowner assistance come from? If the Senate has its way, it won't come from tax payers. Instead, it will come from the profits of government sponsored mortgage giants Fannie Mae and Freddie Mac. The Senate plan would back up a home loan rescue for up to 500,000 strapped borrowers in an effort to pull the nation out of the mortgage crisis.
The plan; being pushed through the Senate Banking Committee, boosts the chances for a broad housing aid package.
The plan would give cheaper, government backed mortgages to up to 500,000 strapped borrowers. The foreclosure prevention plan would divert money intended to pay for housing for the poor. The bill also tightens regulation of Fannie Mae and Freddie Mac, which would finance a new affordable housing fund that would temporarily be used to finance the foreclosure prevention program.
White House officials; however, warn it could be a burdensome bailout that exposes taxpayers to undue risk, and threatens a veto. The bill would let the Federal Housing Administration back up to $300 billion in new loans for struggling homeowners who would otherwise be considered too financially risky to refinance into a fixed rate, government insured mortgage. Borrowers would have to show they could afford the new loans, and to share with the government half of their new equity and any future proceeds from selling or refinancing again. Mortgage holders would have to write down the existing loans at a substantial loss, in exchange for avoiding a costly foreclosure.
"That's what we're checking, because we don't believe that taxpayer dollars should be used to help lenders or speculators. We think that we should be able to help Americans who want to stay in their homes and can afford to stay in their homes find a way to do that without using taxpayer dollars," said Dana Perino, the White House press secretary.
The idea of an FHA based foreclosure prevention bill has drawn staunch opposition from most Republicans, many of whom say they are concerned that taxpayers would be on the hook for huge losses if homeowners defaulted on their new loans.
Many Democrats are displeased about the idea of using a fund designed to help the lowest income people avoid homelessness to instead help middle class people stay in their homes.
Rep. Barney Frank, D-Mass., the Financial Services chairman, has said he is against the idea, and it is certain to be a hotly debated part of House-Senate negotiations on the measure. The projected $2.7 billion cost of his housing package would be covered by the government.
But Democratic senators argued that establishing a lasting fund to help the lowest-income families was worth the short-term trade-off.
"We salvaged an affordable housing program in perpetuity," Dodd said.
"The shortage of affordable homes for the lowest income people in our country has gone unnoticed for too long. Today is a milestone in the quest to assure a decent home for everyone in the United States," said Sheila Crowley, president of the National Low Income Housing Coalition.
Frank said Tuesday that, based on Dodd's agreement with Shelby, "it is highly likely we will be able to compromise on a significant housing package."
The housing package is far from final. The Senate won't act on the measure until after lawmakers return from a week-long Memorial Day break, and even after that, the bill would have to make it through a contentious and complicated round of House-Senate negotiations before it could be presented to Bush. Ultimately, it is expected to include the FHA homeowner rescue; a modernization of the FHA; the regulatory overhaul of Fannie Mae and Freddie Mac; and a package of housing tax breaks, including tax-free mortgage revenue bonds to help homeowners refinance subprime loans.
The Bush administration has long called for the Fannie and Freddie measure, and Treasury Secretary Henry M. Paulson Tuesday called that "the most significant component" of the bill approved by the Senate Banking panel.
"Fannie Mae and Freddie Mac are guaranteeing a greater share of mortgages than ever before," Paulson said in a statement. "It's never been more critical that markets have confidence in how these companies are overseen and regulated."
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