WASHINGTON - Congressional Democrats were negotiating with the Bush administration last week on a plan that would help rescue millions of threatened homeowners.
Both the House and Senate are expected to take up the housing stimulus package when they return next week from their Easter Recess. The major parts of the proposal would create a fund of up to $300 billion to provide federal insurance for refinanced affordable mortgages,
The plan would also include a provision that would allow bankruptcy court judges to amend the terms of mortgages. The credit union lobby, which opposes the concept, is working to limit the bankruptcy provision to only subprime and other non-traditional mortgages, basically shielding most credit union mortgages.
But it is not clear how the Bush administration, which has threatened to veto the bankruptcy provision, will view the rescue plan, as it recently endorsed the Federal Reserve’s plan to set up an emergency lending facility for mortgage backed securities. In addition, the Bush administration has expressed its opposition to other proposals for government intervention in the troubled mortgage markets.
Under the mortgage insurance plan, being drafted by Democrat leaders in the House and Senate, lenders would have to agree to take some losses by forgiving some of the remaining principal on mortgages. In return, the lenders would get federal backing, by the Federal Housing Administration, or FHA, for making new loans.
Homeowners would have to pay for the FHA insurance and would owe the FHA a 3% exit fee when they sell their homes or refinance the new mortgage. They would also owe the FHA a portion of the profits if they sold the home within five years.
