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House Approves Plan To Back Mortgages

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By MARCY GORDON, The Associated Press

Published: September 19, 2007

WASHINGTON - The House on Tuesday approved a plan to expand federal backing of mortgages in hopes of helping struggling homeowners avoid foreclosure.

The bill, which passed the House 348-72, would allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to back refinanced loans for tens of thousands of borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial 'teaser' levels.

The measure, which exceeds limits favored by the Bush administration, is Congress' first stand-alone bill in response to the mortgage-market tumult of the summer, which came amid a rising tide of defaults and foreclosures. The Senate last week passed spending legislation that includes $200 million to provide aid to nonprofit agencies and other groups that offer counseling to help homeowners avoid foreclosure.

House Republicans sharply objected to a $300 million-a-year fund for grants for affordable rental housing and homeownership assistance for low-income families, which would be financed from FHA revenue - a plan also opposed by the Bush administration. But House Republicans mostly were swept along in the vote for the bill, whose overall thrust they endorsed.

'The American dream is in peril for many families in this country as foreclosures rise and dreams shatter,' Rep. Betty Sutton, a Democrat from Ohio, a state particularly hard-hit by the default wave, declared in House debate before the vote.

The bad news deepened again Tuesday. Research firm RealtyTrac said the number of foreclosure filings reported in the United States last month more than doubled compared with August 2006 and jumped 36 percent from July - a trend signaling many homeowners are increasingly unable to make timely payments on their mortgages or sell their homes amid the housing slump.

An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to 'reset' this year and next, jumping from low 'teaser' rates for the first two or three years to much steeper rates that could cost borrowers their homes. The wave of resets could crest during the presidential and congressional election campaigns next year, and the issue has brought politically charged debate in recent weeks over possible responses by the government.

At the same time, turbulence in financial and credit markets resulting from the mortgage upheaval has cast a shadow over the economy and raised the specter of a possible recession.

Sutton called the legislation, which backers say could help an estimated 250,000 families, 'a bold step forward on what is going to be a long road to fix this broken system.'

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said he wanted to rush the measure to the Senate along with a bill to tighten government oversight of mortgage finance giants Fannie Mae and Freddie Mac. The administration has insisted such legislation was needed before restraints on the amounts of mortgage securities the two government-sponsored companies are allowed to buy and hold could be eased.

The White House wants to expand the mandate of the Depression-era FHA, part of the Department of Housing and Urban Development, to allow it to insure loans of delinquent borrowers that are refinanced to lower rates.

However, the administration objects to the bill's increased limit on the size of mortgages FHA can insure to $500,000 in high-cost areas of the country from the current $362,000.

'The program should remain targeted to traditionally underserved homebuyers, such as low- and moderate-income families,' the White House said in a statement Monday.

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