Bush's Plan Brings FHA To Mortgage Front Line

Created in the 1930s, the FHA caters to first-time home buyers, minorities and low- to moderate-income families. Ninety to 95 percent of its customers are expected to be subprime next year.

What the president did not do yesterday was bring any money to the table, as some Democratic lawmakers and presidential candidates have proposed, Bernstein said. The president is empowered to create a fund for people who are not able to repay their loans.

Instead, the president embraced the ideas put forward by Democratic lawmakers, including Frank, Sen. Christopher J. Dodd of Connecticut and Sen. Charles E. Schumer of New York. "These are not his usual tennis partners," Bernstein said. "This is a moment of rare bipartisanship."

But some lawmakers want the president to do more. Schumer wants to see more funding for nonprofit groups that counsel homeowners on preventing foreclosures. In a written statement, he said he had secured $100 million in emergency funding in the Senate for such groups and he wants to increase the amount now that problems are deepening.

Yesterday, Schumer, Dodd and Frank also repeated their calls for the administration to help ease the credit crunch by giving more flexibility to Fannie Mae and Freddie Mac, the largest investors in U.S. mortgages. Many Democrats want the administration to expand Fannie Mae's and Freddie Mac's ability to purchase loans, something the White House has not endorsed. They're also pushing for tougher laws to curb abusive lending practices, which Bush said his agencies are doing already.

"For too long, this president has sat on his hands, as families were losing their homes and others called for action," Dodd said in a written statement. "We need the Federal Reserve to issue a strong regulation that will put an end to the predatory and abusive practices."

Yesterday, Bush focused his remarks mostly on the FHA. But aside from the refinancing measure, most of his other proposals await approval from Congress, including an FHA modernization bill that passed the House but stalled in the Senate last year.

That bill would lower the down-payment requirements and raise the limit on the size of loans that FHA can insure from $362,000 in states with high home prices to $417,000.

Kurt Pfotenhauer, senior vice president for government affairs and public policy at the Mortgage Bankers Association, said the president yesterday raised the profile of FHA, which has surfaced as one of the few viable alternatives for subprime borrowers now that so many subprime lenders have gone out of business.

"Right now, the FHA is the only game in town," Pfotenhauer said. "But that does not solve everyone's problems in the mortgage industry. A lot of people have lost their homes because they lost their jobs and the value of their home is devalued and they don't have the income to pay any loan."

People who are upside down on their loans, meaning they owe more than their homes are worth, may be out of luck under FHA-Secure because many of them probably do not have the required 3 percent equity in their houses.

The FHA measure also does nothing for prime borrowers whose loans are about to reset. "These problems with adjustable rate mortgages can happen to anyone, not just subprime borrowers," said Barry Glassman, senior vice president of Cassaday & Co..

Bush also endorsed legislation by Sen. Debbie Stabenow (D-Mich.) that would change tax law so that homeowners would not have to pay taxes on debt that their creditors forgive.