Senate Passes Bill to Help Subprime Borrowers

The Senate passed legislation yesterday that would make Federal Housing Administration loans available to subprime borrowers facing foreclosure.

The Senate plan would lower the down payment required of low- and middle-income home buyers who obtain federally insured loans, and also allow larger loans. It also would make it easier for homeowners with adjustable-rate loans due to reset to get FHA-backed loans.

The bill passed 93 to 1. Sen. Jon Kyl (R-Ariz.) voted "no."

The House passed similar legislation in September. On Dec. 6, Bush announced a voluntary freeze on subprime mortgage rates that was agreed to by federal regulators and private lenders.

Congress and the Bush administration are addressing the worst housing slump in 16 years by trying to expand the role of the FHA, whose more stringent terms have led more borrowers to turn to subprime lenders. U.S. housing officials estimate that the legislation will help about 200,000 homeowners who have fallen behind on their mortgage payments.

The Senate FHA measure must be reconciled with the House bill, which had higher loan limits and more flexible down-payment requirements. The House legislation also would give the FHA discretion to charge different rates to buyers based on their credit records, and extend the maximum mortgage term to 40 years from 35 years.

The White House has indicated that President Bush will sign the final bill.