Dodd’s proposal would create a new program within the Federal Housing Administration aimed at helping distressed homeowners refinance into loans they can afford. Under the proposal, lenders would agree to write down a homeowner’s existing mortgage balance. In exchange, the FHA would insure a new 30-year, fixed rate loan with an FHA-approved lender and the original mortgage holder could walk away.
The measure is a companion to legislation from Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Like Frank’s draft released March 14, Dodd’s text is meant as a discussion draft that’s being circulated to industry and other stakeholder groups for comment. Frank has scheduled hearings on his bill for April 9 and 10.
The House and Senate drafts are not identical, nor were they meant to be though the two lawmakers agreed on the general structure beforehand. Dodd’s office estimates his proposal would insure up to $400 billion in mortgages. Frank’s bill would permit the FHA to offer up to $300 billion in new guarantees.
Dodd’s bill appears to lessen the potential hit lenders would take, too. Under his draft, the FHA could only insure up to 90 percent of the current value of a house. Frank’s bill includes similar language but also says that the original lender can’t get more than 85 percent of the current appraised value as payment.
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