Bush's rescue plan for homeowners limited, analysts say

WASHINGTON — Housing analysts said Friday that the limited steps President Bush outlined to deal with a rise in mortgage defaults duplicate efforts under way in Congress and other federal agencies, would help at most 21 percent of homeowners facing foreclosures and would do little to help areas with inflated real-estate prices.

Bush called on Democrats to OK a modernization of the Federal Housing Administration (FHA), which passed the House last year with bipartisan support but was quashed by Senate Republicans.

He promised to require greater disclosure from lenders, a move on which federal bank regulators have provided guidance. He promised to get tough with unscrupulous mortgage brokers, but they're largely regulated on the state level. During a briefing Friday, a senior administration official acknowledged that the plan would do little to help states with high real-estate prices, such as California.

That's because most California homeowners carry mortgages well above the higher FHA loan limits in the modernization bill.

What does the Bush plan do? Here are some answers:

Q. How many borrowers with subprime loans — those given to homeowners with the weakest credit histories — will the plan reach?

A. The FHA expects to have refinanced 100,000 subprime homeowners with adjustable-rate loans in the current fiscal year, which ends Sept. 30. It expects to refinance an additional 140,000 next year through its FHASecure, a new name for the refinancing it's already doing.

Q. Does that cover most of the problem loans?

A. Not even close. The administration admits it will be able to reach, at best, 480,000 qualified subprime borrowers by the end of 2009. But it thinks 600,000 or 700,000 will qualify for help.

Housing advocates expect 2.2 million or more foreclosures tied to the subprime meltdown. The administration thinks two-thirds of the subprime loans issued in 2005 and 2006 were exotic adjustable-rate loans with low teaser rates that will reset to much higher rates this year and next year. Housing groups say 81 percent were. Whichever number is correct, the worst on foreclosures is ahead.

Q. Isn't the president's call for Congress to pass a modernization bill for the FHA good?

A. Yes. But the bill introduced by the administration last year — modified and passed by the House with broad support — died in the Senate. Had it passed, "we could have helped more people," one administration official said.

The failed bill included several items Bush advocated Friday, including allowing the FHA to charge a risk premium, so that borrowers with good credit pay less to borrow and spottier borrowers more.

Q. Who needs help the most?

A. States such as California and New York and areas such as South Florida and Las Vegas, where inflated real-estate prices are falling. Modernization would increase FHA loan maximums from $362,000 to $417,000, which could help an additional 60,000 subprime borrowers.

Q. What happens to high-price markets in the Bush plan?

A. Many borrowers in markets seeing the biggest price corrections won't qualify for FHA help if they lack the required 3 percent equity in their homes. Many homeowners in these markets have new houses worth less than their outstanding loans.

Q. The president promised tax help to troubled borrowers. What's this about?

A. Bush supported a plan by Sen. Debbie Stabenow, D-Mich. She proposes not taxing the portion of a home loan forgiven by lenders when a troubled mortgage is being restructured. Most profit from a home sale isn't taxed, but when a loan goes bad, the portion the lender agrees not to collect is taxed as income.

Associated Press material is included in this report.