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House OKs mortgage rescue

The Baltimore Sun

WASHINGTON -- The House passed yesterday the most sweeping government plan yet to shore up the troubled housing market and help people struggling to pay their mortgages, adopting legislation that would underwrite $300 billion in new loans and keep an estimated 500,000 homeowners out of foreclosure.

Backers contend that the bill - or something close to it - has a good chance to become law even though Senate Republicans have criticized it and the president has threatened a veto.

"We're not stopping trying to compromise," said Rep. Barney Frank, a Massachusetts Democrat who is chairman of the House Financial Services Committee and chief author of the package. "We're still taking their views into account and moving forward."

Democrats and Republicans have clashed repeatedly over the size, pace and scope of any government rescue plan. And some House Republicans complained about parliamentary maneuvers that Democratic leaders used to move the bill to a vote and reduce the chances that it would become bottled up in the Senate.

As the housing crisis has deepened, however, and opinion polls have shown increased voter anxiety about the economy, pressure has mounted on both parties to take action before the Nov. 4 election.

"We cannot stick with the status quo," said Rep. Ginny Brown-Waite of Florida, one of 39 Republicans who voted for the measure. "That's sticking our policymaking heads in the sand."

Rep. Gary Miller was the only California Republican to vote for the bill. "I don't support government bailouts, but I consider this bill far from a government bailout," said Miller, whose Southern California district includes communities hurt by the wave of foreclosures.

The bill passed by a vote of 266-154.

Many Republicans who otherwise supported the legislation voted against it to protest what they called the majority's heavy-handed procedural tactics to limit debate and speed passage by sending the measure directly to the floor of each house.

The housing crisis not only has pitted Democrats against Republicans but has also divided the GOP internally, with some Republicans arguing that the government should let market forces deal with the issue and others insisting that the collateral damage from a hands-off approach is too great.

Declining home values and a paralyzed housing industry hurt entire neighborhoods and communities, drain local tax coffers, boost unemployment and depress the overall economy as the effect of the housing downturn spreads, they argue.

"No one wins when a house in the neighborhood is foreclosed. Absolutely no one because it brings down the value of those properties," Brown-Waite said.

At the center of the legislation is a measure that would allow the Federal Housing Administration to insure up to $300 billion in refinanced mortgages if lenders agree to write down the loan principal below the home's current appraised value. The plan would help an estimated 500,000 homeowners avoid foreclosure.

The measure would cost about $2.7 billion, according to the Congressional Budget Office.

Another provision, with particular relevance to states with high home costs, would permanently raise to $729,750 the limit for mortgages that government-sponsored holders Fannie Mae and Freddie Mac can buy .

Without congressional action, that limit could revert to as low as $362,000 by the end of the year.

"One of the biggest challenges facing the housing market in high-cost states like California is that housing programs have not kept pace with the times. Unrealistically low loan limits for Fannie Mae, Freddie Mac and FHA mean that people living in high-cost states have not fully benefited from these programs," said Rep. Jerry McNerney, a Northern California Democrat.

Supporters said the bill would also remove a key obstacle preventing many homeowners from refinancing - that they have no equity because their home has lost value and is now worth less than they owe on the mortgage.

Opponents argued that the FHA program would bail out lenders, not homeowners, and reward reckless behavior by both borrowers and lenders.

"More than nine out of 10 mortgage holders make payments on time. They will now be on the hook for bad mortgage debt, as will renters saving for a first-time home, and those who own their homes outright," said Rep. Wally Herger, a California Republican. "This bill sends the signal that there are no real consequences for poor lending or borrowing practices and encourages more of the same behavior that led us here in the first place."

Frank argued that the refinanced loans would not reward speculators and investors because they would be limited to people who live in the homes they have mortgages on.

The homeowners would have to demonstrate an ability to repay, accept high mortgage insurance premiums and share any proceeds from a sale of the home with the government.

Maura Reynolds writes for the Los Angeles Times.

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