Senate passes bill to curb foreclosures

Trying to curb home foreclosures, the Senate voted Wednesday to make it easier for homeowners with risky credit to switch to a lower-cost mortgage backed by the government.

The bill, passed 91-5, also would give banks a break by encouraging reduced fees they must pay for the government to insure deposits.

While both steps put taxpayer money on the line, lawmakers say the legislation is needed to prevent the economy from getting worse.

“Given the size and scope of the struggles too many Nevadans and Americans endure, it will take more time before housing normalizes again,” said Senate Majority Leader Harry Reid, Nevada Democrat. “But with this bill, we are working to hasten that day so that no family will ever accept losing its home as the way it is.”

Absent from the measure was a bankruptcy provision that President Obama had promised to push through Congress, but backed down amid stiff opposition from banks. The provision, rejected by the Senate last week in a 45-51 vote, would have allowed bankruptcy judges to lower a person’s mortgage payment.

While the House included the provision when it passed its version of the bill in March, lawmakers said it didn’t have enough support to insist it be included in the final compromise bill sent to Mr. Obama.

“That issue is a dead letter,” said Sen. Christopher J. Dodd, Connecticut Democrat, chairman of the Senate Committee on Banking, Housing and Urban Affairs.

Also on Wednesday, Congress sent the president a bill that would hire hundreds of FBI agents and prosecutors to investigate mortgage fraud. The legislation also would establish a $5 million, independent commission to investigate the cause of the financial crisis and chart a path forward.

The Senate housing bill would expand an existing $300 billion program called “Hope for Homeowners,” which encourages lenders to write down an individual’s mortgage if the homeowner agrees to pay an insurance premium. The program, which is set to expire in 2011, is intended to swap out a homeowner’s high-interest rate for a 30-year fixed loan backed by the Federal Housing Administration (FHA).

So far, the program has been a dud.

When it was established last year, Congress envisioned helping about 400,000 troubled homeowners. But because eligibility requirements were so strict, one borrower has completed the refinancing process and only 51 more are in the works, according to statistics released last week.

The Senate bill would expand eligibility. For example, the program currently bans participants who intentionally defaulted on the mortgage or other substantial debt. The Senate bill would narrow that prohibition to defaults within the past five years.

Republicans swung behind the proposal to expand the program using $2 billion from the $700 billion Wall Street bailout fund. Sen. Richard C. Shelby of Alabama, the top Republican on the banking committee, co-sponsored the bill with Mr. Dodd.

Still, some Republicans warned that increasing the burden of the government to insure risky mortgages - even if it saves people from foreclosure - could backfire. Sen. David Vitter, Louisiana Republican, who called the FHA a potential “ticking time bomb,” proposed letting the administration suspend any programs that threaten its solvency.

His effort was defeated 36-56.