White House seeks to reduce mortgage costs

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Encouraging lenders to reduce the cost of mortgages so about 100,000 homeowners can avoid foreclosure is the White House's latest attempt to keep the housing market afloat.

Democrats on Capitol Hill did not reject or embrace yesterday's plan and continued to work behind closed doors on a much larger package to address the housing crisis, which they'll vote on today.

But Democratic leaders continued to criticize the Bush administration's approach to the economic crunch, saying it does not do enough for the average person.

Economic conservatives, meanwhile, warned against too much government intervention, saying quick fixes will have negative long-term consequences.

"It's easy for politicians to try and play the role of 'economic savior" during turbulent economic times, but given the current climate, more government interference in the housing market is the last thing we need," said former House Majority Leader Dick Armey, who now chairs a small-government advocacy group called FreedomWorks.

White House press secretary Dana Perino said the administration plan "is not a silver bullet that will solve all the problems in housing, but it will help some additional people stay in their homes."

"That's something the president wants to see," she said.

The White House proposal is aimed at homeowners who owe more on their mortgage than their home is actually worth and who might have missed a few payments but otherwise are in good credit standing.

The Federal Housing Administration (FHA), under the plan, would insure loans if mortgage companies wrote down the value of the note from 90 percent to 97 percent of the new value.

The mortgage would go into the FHA Secure program, and the FHA would then absorb the risk of the loan, backed by the premiums paid to the FHA by other borrowers.

The Bush administration already has helped about 130,000 homeowners refinance their subprime loans under the FHA Secure program, which they started last summer to address the housing crisis. By the end of the year, they hope to have helped 500,000 homeowners avoid foreclosure.

House Majority Leader Steny H. Hoyer, Maryland Democrat, said the Bush administration's housing proposal is "not as strong as we would like" but is "certainly closer to Democratic proposals to address the nation's housing crisis and help struggling homeowners."

But Senate Majority Leader Harry Reid, Nevada Democrat, said yesterday that the U.S. market is facing 3 million foreclosures over the next year.

"We have 9 million homes whose mortgages are worth more than the house is worth," Mr. Reid said outside the White House after attending a meeting of congressional leaders with the president."... The president must work with us to do something to relieve the American people of the financial burdens that they face."

Senate Democrats and Republicans have proposed a set of measures that would do more for builders, mortgage companies and homeowners but also would cost taxpayers $10 billion to $20 billion.

House Democrats also this week put forth a plan to offer tax breaks for first-time home buyers and homeowners facing foreclosure.

White House officials, while in favor of expanding the FHA's loan program, say they do not support giving about $4 billion to state and local governments to buy foreclosed homes.

But Senate Minority Leader Mitch McConnell, Kentucky Republican, said yesterday that the president has not issued a veto threat against the Senate housing bill, adding that after the House passes a bill, "we'll all negotiate to see if we can come up with something that's mutually agreeable."

c Sean Lengell contributed to this report.