Daily Real Estate News  |  March 19, 2008  |   Democrats Seek to Aid Home Owners
Democrats in both houses of Congress are working to bring legislation to a vote that would target home owners who are facing foreclosure because they can’t pay the escalating interest.

Under the program, environed by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), a home owner could contact an approved Federal Housing Administration lender for assistance.

The new lender would determine how much the house is worth and how much the home owner could reasonably afford to pay. The existing mortgage holder would then be asked to accept the lower amount, which would be paid in cash by the new lender. The mortgage would in turn be insured by the FHA.

Existing mortgage holders would bear most of the costs. Frank's proposal would limit their payoff to 85 percent of the home's current appraised value. The banks also would be required to waive all fees and penalties.

Home owners would have to pay for the FHA mortgage insurance and would owe the FHA a 3 percent exit fee when they sell their homes or refinance the new mortgage. They also would owe the FHA a portion of the profit if they sold within five years.

While some of the new mortgages would undoubtedly default, Congressional aides said the program would cost taxpayers little to nothing.

Sen. Richard C. Shelby (Ala.), the senior Republican on the Banking Committee, has repeatedly stated his opposition to "any taxpayer bailout of lenders or borrowers."

Source: The Washington Post, Lori Montgomery (03/19/2008)