Wall Street and Washington share bailout idea
A mortgage bailout plan hatched between Wall Street and Congress is gaining political traction even though it could be on a crash-course with the Bush administration.
The plan would amount to a steroid boost for the Federal Housing Administration, a program conceived to help poor people buy homes that is now being used as a subprime mortgage lifeline.
Both Credit Suisse and Bank of America have mapped out how the FHA could gather up more shaky home loans and Rep. Barney Frank, chairman of the House of Representatives’ Financial Services Committee, on Thursday offered legislation to do just that.
Under those plans, the government would take failing mortgages off the hands of investors and write new terms that would prevent foreclosure.
The Frank bill is specifically aimed at borrowers who are distressed because the value of their home has dropped.
His legislation would see lenders write down the mortgage amount in exchange for a government guarantee the new loan would not fail payday loans. Lenders who have a choice between seizing a home or taking a hit on the loan amount could find the plan appealing.
The Frank plan was endorsed on Thursday by another key Democrat — Senate Banking Committee Chairman Christopher Dodd — but the Bush administration and congressional Republicans have signaled that they would not countenance a costly, investor bailout.
“I’m not surprised that the industry would support a government-backed solution but we are going to be watching the potential risk to the taxpayer,” said a senior Republican Senate aide, who asked not to be named.