Rep proposes home-refinancing plan

Some Republicans see the plan as a bailout for reckless borrowers.

WASHINGTON (AP) — Homeowners buckling under their mortgage payments would be allowed to refinance into more affordable government-backed loans under a proposal introduced by a House committee chairman Thursday.

The measure by Rep. Barney Frank, D-Mass., calls for the Federal Housing Administration to insure some $300 billion in new mortgages for distressed borrowers, even if they are badly behind on their payments and have poor credit — including those who owe more than their homes are worth.

The bill would substantially relax the standards of the Depression-era FHA in an effort to reach the hardest-hit homeowners, leaving the government responsible for paying off their loans if they cannot. Lenders first would have to agree to wipe out a portion of the outstanding debt, and borrowers would have to show they could afford to make payments on the new mortgage.

Frank has described the plan — regarded by some Republicans as a bailout for reckless borrowers — as a measured response to the housing crisis that is necessary to head off further economic problems.

“Some people who made irresponsible decisions to borrow more than they should have are going to be helped by this,” Frank, the House Financial Services Committee chairman, told The Associated Press this week. “The alternative is to do nothing and have greater damage to neighborhoods [and] the economy.”

The measure is set for a committee vote next week, and Speaker Nancy Pelosi, D-Calif., said the House would act on it as quickly as possible.

Frank is hoping to attract bipartisan support for the plan, which he says has a better than even chance of clearing Congress and being signed by President Bush.

Some Republicans are wary, though, about embracing a government aid package for homeowners who overextended themselves.

The Bush administration has raised concerns that easing FHA’s standards would expose the government to inappropriate risk.

To qualify for the program, home- owners would have to have debts that amount to at least 35 percent of their income, and that ratio could rise to 50 percent if they showed they could make payments for six months. An oversight board could raise the limit as high as 55 percent. Currently, the FHA insures loans only for borrowers whose debts total 43 percent or less of their income.

Frank said congressional analysts believe the ultimate cost of the plan — which would depend on how many homeowners defaulted and how much their homes were worth — would be $3 billion to $4 billion.

Democrats also are proposing sending $15 billion to states for the purchase and rehabilitation of foreclosed properties.