|The Bush administration yesterday unveiled a plan to rescue 100,000 homeowners at risk of foreclosure by relaxing eligibility standards for government-backed loans and encouraging lenders to forgive a portion of their debt.|
The proposal was quickly criticized by consumer groups, who said it would do little to slow a mortgage meltdown that last year threw more than 1.5 million households into foreclosure. But it was embraced by key Democrats, who said the White House is acknowledging that more aggressive government action is needed to help the most hard-pressed borrowers who owe banks more than their homes are worth because of plunging prices.
"There's consensus forming around the notion that we're not going to get to the bottom of this without some plan that involves more government involvement than merely nudging borrowers and lenders to work it out," said Jared Bernstein, a senior economist at the Economic Policy Institute.
Under the White House proposal, subprime borrowers who cannot afford their loans and have missed two or three mortgage payments would for be eligible for assistance from the Federal Housing Administration. Lenders would be encouraged to forgive a portion of those loans for some of the most troubled borrowers so that they can refinance.
"Our plan will help hundreds of thousands of desperate families who have no place else to turn for safer, lower cost ways to keep their homes," FHA Commissioner Brian D. Montgomery said in a written statement. "We want to be able to help families who are in the right house, but the wrong mortgage."
The plan is similar to significant elements of legislation proposed by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.). The Democrats' proposal is far more ambitious, aiming to help as many as 2 million distressed borrowers by permitting the FHA to back refinanced mortgages for homeowners who are delinquent or in default.
Frank, who noted that the administration chose to announce its plan at a hearing on his bill, said the White House has "undercut" Republican lawmakers and other conservatives who continue to insist that the federal government should do nothing.
"The administration tried to stonewall," Frank said. But "they were running into a lot of political pressure. They were also being told by economists, including, I think, at the Fed, that you're not going to get out of this recession until you do something."
Once again taxpayers get screwed.