Senate Votes on Mortgage Switch

WASHINGTON (AP) - 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

While both steps put taxpayer money on the line, lawmakers say
the legislation is needed to prevent the economy from getting

"Given the size and scope of the struggles too many Nevadans
and Americans endure, it will take more time before housing
normalizes again," said Senate Majority Leader Harry Reid, D-Nev.
"But with this bill, we are working to hasten that day so that no
family will ever accept losing its home as the way it is."

Absent from the measure was a bankruptcy provision that
President Barack Obama had promised to push through Congress, but
backed down amid stiff opposition from banks. The provision,
rejected by the Senate last week in a 45-51 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.

Also on Wednesday, the House agreed to a Senate-passed bill that
would hire hundreds more FBI agents and prosecutors to investigate
mortgage fraud. The legislation, expected to reach the president's
desk soon, also would establish a $5 million, independent
commission to investigate the cause of the financial crisis and
chart a path forward.

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.

Still, some Republicans warned that increasing the burden of the
government to insure risky mortgages - even if it saves people from
foreclosure - could backfire. Sen. David Vitter, R-La., who called
the Federal Housing Administration a potential "ticking time
bomb," proposed letting the administration suspend any programs
that threaten its solvency.

His effort was defeated 36-56.

Another issue is whether Hope for Homeowners will be enough to
keep people in their homes, considering other voluntary efforts
haven't provided homeowners steep discounts. According to a report
released last month by federal regulators, fewer than half of the
loan modifications made by lenders at the end of last year reduced
payments by more than 10 percent.

The Senate housing bill also would permanently increase the
borrowing authority for the Federal Deposit Insurance Corporation
from $30 billion to $100 billion. Increasing the FDIC's credit
would allow the agency to reduce large new premiums it has begun
charging banks to insure deposits.

In addition, the bill extends through 2013 an increase in
deposit insurance by the FDIC from $100,000 to $250,000.

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