Housing Bill Relies on Banks to Take Loan Losses

Wall Street Journal (07/28/08) P. A3; Paletta, Damian
The Senate passed legislation on July 26 that aims to help some 400,000 homeowners by allowing FHA to refinance as much as $300 billion in mortgages, but the program's success depends on how receptive banks are to writing down a portion of the loans. The FHA would refinance mortgages for only 90 percent of their newly appraised value, meaning that lenders would have to write down up to 10 percent of the mortgage amount. Lenders say they are willing to adhere to the guidelines when the program--which will assist only those borrowers who have not intentionally defaulted and have debt-to-income ratios above 31 percent--is implemented on Oct. 1. House Financial Services Committee Chairman Barney Frank, D-Mass., wants lenders to postpone foreclosures for borrowers who likely will qualify for the program, which will end on Sept. 30, 2011.