The House passed a contentious foreclosure prevention package which faced a veto threat from the White House and fierce negotiating in the Senate. The Senate worked on producing a similar bill that would lessen Administration opposition. Why the contention for the solution to a problem that just about everyone agrees we need? The bill enables the Federal Housing Administration (FHA) to insure up to $300 billion in new loans if lenders agree to reduce the mortgage principal. To qualify, the lender would have to cut the debt to no more than 85% of a home’s current appraised value. The Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers at a cost of $1.7 billion to taxpayers. This cost could weaken the FHA mortgage program. Supporters note that the program is limited to loans for owner-occupied residents, not speculators. They also make the case that lenders and investors would be taking a loss on every loan and that the borrower would be paying higher-than-usual premiums to the FHA to insure the loan. Negotiations are completed in the Senate and the final bill may contain additional provisions to bolster the housing market.

Tags: Foreclosures