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House passes rescue package for mortgage crisis

Lenders who trim the principal on troubled loans would get federal loan guarantees.

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But Republicans and the Bush administration say that lenders would take advantage of the proposed new law by transferring their highest-risk loans to the federal government, including those with the worse payment histories. At a cap of $300 billion, only a third or fourth of those who are most delinquent on their mortgages would benefit, he says.

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By contrast, Republicans propose first helping those borrowers who come closest to satisfying the terms of their mortgages. In response to the subprime mortgage crisis, the Bush administration has expanded eligibility standards for federally insured loans.

Democrats note that only a few thousand families have benefited from these efforts to date. But by the end of 2008, the FHA Secure program will reach more than a half-million homeowners, FHA commissioner Brian Montgomery told the House Financial Services panel last month.

In the run-up to this week's vote, other top federal housing and banking officials have supported a greater federal role in curbing foreclosures,

"As a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million US homes during 2007, up 53 percent from 2006, and the rate of foreclosure starts looks likely to be yet higher in 2008, Ben Bernanke, chairman of the Federal Reserve Board, said in a speech at the Columbia Business School in New York on Monday. Avoiding "preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."

House Democrats say that the White House veto threat caught them by surprise. "Last time we heard they were going to veto the bill, they specifically repudiated that, and in the interim, the bill got better from their standpoint," says Representative Frank (D) of Massachusetts, who chairs the House Financial Services Committee, which adopted nine Republican amendments in marking up the bill.

"The best thing for us to do is to keep going ahead," he said after the vote. "We're not folding up our tents, we're not stopping trying to compromise. We're still taking their views into account and moving forward."

Meanwhile, the Senate Banking Committee is expected to begin a markup of its own version of the bill next week. "We're working and have been working over the last few weeks with Republicans to develop bipartisan legislation – a creative, practical way to help thousands of people stay in their home," said chairman Christopher Dodd (D) of Connecticut at a press briefing after the president's veto announcement.

With problems in housing markets mounting and more adjustable mortgages set to reset in July, "my hope is that the president will rethink that position," he said.

Republicans on the panel say that negotiations on the shape of the bill, expected to include a version of the House FHA plan, are ongoing. A spokesman for Sen. Richard Shelby (R) of Alabama, the top Republican on the panel, says that his primary considerations are reforms for government-sponsored mortgage companies and ensuring that new FHA programs are paid for.

"Whether we've reached an agreement remains to be seen," he adds.

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