Bill to Propose Expanded U.S. Backing of Home Loans

New York Times (03/13/08) P. C2; Bajaj, Vikas
House Financial Services Committee Chairman Barney Frank, D-Mass., will introduce legislation on March 13 that would allow the FHA to refinance more struggling subprime mortgages, but the plan is more aggressive than existing efforts in that it calls on lenders to voluntarily write down loans to the current market value prior to refinancing. It remains to be seen whether the bill will receive support, given that an increase in defaulted FHA loans could force the government to post substantial losses. Meanwhile, a proposal will be issued by the National Community Reinvestment Coalition urging the government to purchase discounted mortgages via auction, reselling the mortgages to banks and investors after reducing their balances and interest rates. John Taylor, the coalition's president, calls the solution "market-driven," noting that money from the mortgage sales would be used to purchase additional loans to keep the program going.