Senate tries again on mortgage aid program

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The U.S. Senate is poised to pass legislation aimed at making it easier for homeowners to replace high-risk ‘underwater’ home loans with 30-year fixed-rate mortgages.

But taxpayers would wind up at risk if the homeowners default, according to an Associated Press report today from Washington.

The so-called Hope for Homeowners program was supposed to replace 400,000 dicey loans with cheaper, safer Federal Housing Administration mortgages.

But the complex plan has been a dud, for reasons that include a requirement that banks must write down the balance of the mortgages. That restores borrowers’ equity but causes losses for the banks.

The AP said statistics released last week showed that just one borrower has completed the refinancing process and only 51 more are in the works. Lawmakers quoted by the news service said loosening up the program requirements would prevent the economy from getting worse by helping more homeowners.

The bill would also give banks a break by reducing fees they must pay for the government to insure deposits.

The House in March approved a similar version of the bill. The two chambers would have to resolve differences before a final bill is sent to the president to sign.

-- E. Scott Reckard