Senate committee approves bill expanding government backing of mortgages

A day after the Federal Reserve moved to calm fears about expanding home mortgage defaults and related market volatility, a Senate panel approved its own plan for keeping US homeowners in their homes. The Senate Banking Committee has approved legislation that would expand the ability of the US government to support higher-risk borrowers, just one day after the full House approved similar legislation.

‘The mortgage markets — particularly the sub-prime market — are in the midst of a meltdown,’ Committee Chairman Chris Dodd of Connecticut said today. Dodd said abusive and predatory lending practices are in part to blame for the rising mortgage delinquency rate, and are threatening millions of homeowners with the loss of their homes.

‘We need to make sure that credit is available, including for sub-prime borrowers, on fair terms so that the people of this country have an opportunity to build wealth for the future,’ he said. The bill would specifically expand the ability of the Federal Housing Authority to insure US mortgages.

While the FHA is already the world’s largest mortgage insurer, members of Congress have said rising home prices have prevented the FHA from backing as many mortgages as it can, given current limits it faces. The so-called FHA Modernization Act of 2007 would raise the value of loans that can be insured by FHA, and also allow FHA to back loans with lower down payments. It would also require mortgage counselling for borrowers about to buy a home with a low or no down payment.

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