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Senate Panel Approves Housing Bill
Sen. Christopher J. Dodd (D-Conn.) chairs the panel that approved the housing bill.
(Bob Child - AP)
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Dodd and other Democrats want to relax FHA eligibility standards further, authorizing the agency to insure mortgages for even the least creditworthy borrowers if lenders will forgive a portion of their debt and issue new, smaller loans with lower monthly payments. The government would not hold the mortgages but would agree to pay off lenders if borrowers default.
Borrowers and lenders would both pay high fees to the FHA, and borrowers who sell or refinance would have to share at least half of any profit with the government.
In its analysis of the House bill, the Congressional Budget Office said that 500,000 homeowners are likely to benefit from the program, with more than a third likely to default at a cost to taxpayers of $1.7 billion over five years.
The Senate bill aims to help the same number of borrowers at a lower cost, committee aides said. Unlike the House bill, it would not permit borrowers who sell or refinance to deduct fees paid to the FHA when they calculate profit to be shared with the government.
The Senate bill requires slightly less sacrifice from lenders. Both bills would require banks to forgive enough of the outstanding principal to reduce the new loan to 90 percent of a home's current value. The House bill would add 5 percent in fees, the Senate bill 3 percent.
Shelby and Dodd spent weeks negotiating but reached an impasse last week, with Shelby insisting that taxpayers should not subsidize irresponsible borrowers. The breakthrough came Thursday, when Sen. Jack Reed (D-R.I.) proposed using the low-income-housing fund to pay for the FHA program.
Staff writer Jeffrey H. Birnbaum contributed to this report.
