WASHINGTON – Trying to curb home foreclosures, the Senate voted on Wednesday to make it easier for homeowners with risky credit to switch to a lower-cost mortgage backed by the government.
The bill, passed 91-5, also would give banks a break by encouraging reduced fees they must pay for the government to insure deposits.
While both steps put taxpayer money on the line, lawmakers say the legislation is needed to prevent the economy from getting worse.
Absent from the measure was a bankruptcy provision that President Barack Obama had promised to push through Congress, but which drew stiff opposition from banks. The provision, rejected by the Senate last week in a 51-45 vote, would have allowed bankruptcy judges to lower a person’s mortgage payment.
While the House included the provision when it passed its version of the bill in March, lawmakers said it didn’t have enough support to insist it be included in the final compromise bill. The two chambers have to iron out their differences in the legislation before it can be sent to Obama to sign.
“That issue is a dead letter,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee.
The Senate housing bill would expand an existing $300 billion program called “Hope for Homeowners,” which encourages lenders to write down an individual’s mortgage if the homeowner agrees to pay an insurance premium. The program, which is set to expire in 2011, is intended to swap out a homeowner’s high-interest rate for a 30-year fixed loan backed by the Federal Housing Administration.
So far, the program has been a dud.
When it was established last year, Congress envisioned helping some 400,000 troubled homeowners. But because eligibility requirements were so strict, one borrower has completed the refinancing process and only 51 more are in the works, according to statistics released last week.
The Senate bill would expand eligibility. For example, the program currently bans participants who intentionally defaulted on the mortgage or other substantial debt. The Senate bill would narrow that prohibition to defaults within the last five years.
Republicans swung behind the proposal to expand the program using $2 billion from the $700 billion Wall Street bailout fund. Sen. Richard Shelby of Alabama, the top Republican on the Banking Committee, co-sponsored the bill with Dodd.