Under Democrats' housing aid plan, strapped homeowners could refinance into government backed mortgages and states would get money to deal with foreclosed property .
This would be the most significant action Congress has taken to date to address the housing crisis that's at the center of the nation's economic woes.
President Bush has threatened to veto both measures, which he says reward lenders and speculators. Democrats counter that the bills will head off hundreds of thousands of foreclosures, stabilize the shaky housing market, and prevent neighborhood blight.
A bill by Republican Barney Frank, is at the center of their plan, the House Financial Services Committee chairman, and will ask the have the Federal Housing Administration relax its standards and back up to $300 billion in more affordable, fixed-rate loans for borrowers currently too financially strapped to qualify.
If their lenders agreed to take substantial losses on the original mortgages, those homeowners could refinance into new loans but borrowers would have to show they could afford to make payments on the new loans. They would have to share with FHA at least half of their proceeds if they profited from selling or refinancing again.
Roughly 500,000 borrowers are predicted to be helped by this plan at a cost of $2.7 billion over the next five years.
Another bill would send $15 billion in loans and grants to states for the purchase and rehabilitation of foreclosed properties. Proponents say it will prevent blight in neighborhoods plagued by abandoned, foreclosed homes.
Some critics argue that this would reward lenders and investors who own the property, and could act as an incentive for them to foreclose rather than find ways to help struggling borrowers stay in their homes.
The Democrats that seek the support from Republicans for their housing package, were planning to attach a grab-bag of measures Bush has called for.
The plan is also to include a housing tax credit of up to $7,500 for first-time home-buyers, to be paid back over 15 years. This would permanently raise the limit on the size of loans FHA could insure and Fannie Mae and Freddie Mac could buy to $729,750 in the highest-cost housing markets. Those caps are scheduled to fall at the end of the year, to $362,790 for the FHA, and to $417,000 for Fannie Mae and Freddie M.
Contributed by MLR Realty
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