Congress Considers More Help For Homeowners

WASHINGTON - Congress is set to examine another round of possible repairs for consumers and investors threatened by widening cracks in the housing market.
Proposals include easing bankruptcy rules, shielding banks from lawsuits and providing government assistance to homeowners facing foreclosure.
Lawmakers also plan this week to question several high-profile mortgage and banking executives about industrywide losses and lavish executive-compensation packages.
The housing proposals percolating on Capitol Hill, many of them designed by Democrats, are expected to face much tougher resistance than the recently approved economic stimulus package, which touched on the mortgage crisis in a limited way.
A bill likely to be debated on the Senate floor Tuesday includes a proposed revision to the U.S. bankruptcy code that would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. Currently, mortgage lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.
The bankruptcy measure, a similar version of which has cleared a House committee, is fiercely opposed by lenders and many Republicans.
The Mortgage Bankers Association, which is lobbying against the measure, said it would end up hurting many more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention on behalf of some homeowners.
Consumer advocates, meanwhile, are pushing senators to approve the change.
Also included in the Senate legislation is a measure mandating $200 million for foreclosure-prevention counseling services - a near doubling of funds already committed by Congress - and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.
In the House, lawmakers are considering whether the federal government should shield banks from lawsuits brought by investors whose holdings of mortgage securities are negatively affected by changes in loan terms or other measures intended to help at-risk borrowers. The plan was first put forward by Rep. Mike Castle, R-Del., but appears to have attracted support from key House Democrats.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, has proposed the creation of a federal corporation, funded with as much as $20 billion, to buy distressed mortgages and help struggling homeowners refinance into affordable loans.
The focus on new housing proposals isn't limited to the legislative branch.
The federal Office of Thrift Supervision, a division of the Treasury Department, is drafting a plan to help borrowers who owe more on their mortgages than their homes are worth.
The plan would allow an estimated 8 million homeowners with "upside-down" mortgages to refinance into government-backed loans covering the home's current value. To make up the difference, lenders would receive a special certificate equivalent to the remainder of the balance owed that they could redeem if the home were eventually sold at a higher price.