House Approves Homeowner-Rescue Legislation

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RENEE MONTAGNE, host:

NPR's business news starts with the homeowner rescue bill.

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The House of Representatives yesterday passed the most significant legislation to date aimed at resolving the ongoing foreclosure crisis. NPR's Chris Arnold reports on the proposal which now heads to the Senate.

CHRIS ARNOLD: The centerpiece of the legislation is a proposal by Congressman Barney Frank. It aims to deal with the problem of so many people facing foreclosure being upside down in their houses, meaning they owe more than the house is worth. If the lenders agree to cut the amount owed to 90 percent of the value of the house and the borrower can afford to pay a market rate private sector loan, the government would guarantee the new loan. That would allow an estimated 500,000 homeowners to refinance.

Mr. CHIP CASE (Economist, Wellesley College): The government has got to do something.

ARNOLD: Chip Case is a housing economist at Wellesley College.

Mr. CASE: What the Congress is trying to do is break a log jam. There are people who owe money. They're not making payments.

ARNOLD: In many cases it would save money for the borrowers and lenders to give them a new loan that they can actually afford and avoid a foreclosure.

Mr. CASE: This is an attempt to do that quickly, to get them refinanced at a level that people can afford to stay in.

ARNOLD: The Frank Bill would cost an estimated $2 billion, but only if it resulted in some $300 billion worth of private refinancings would the cost go that high. Another bill that passed yesterday would direct $15 billion to the states to buy up foreclosed properties.

Republicans have criticized the bills as bailouts and President Bush has threatened to veto them.

Chris Arnold, NPR News.

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