September 14, 2007 / 10:19 PM / 12 years ago

Senate housing panel to vote on FHA plan next week

WASHINGTON (Reuters) - The U.S. Senate panel responsible for housing finance will vote on Wednesday on a measure that could help troubled homeowners refinance into a new loan, the panel's chief said on Friday.

The committee will weigh changes to the Federal Housing Administration, which government officials have said could aid around 200,000 troubled borrowers if the program were modernized.

"FHA loans have long been a source of quality mortgage credit for working families, and I believe they can be an important component in addressing the tidal wave of foreclosures that is expected to sweep through the communities and neighborhoods of our country in the coming 18 months," Christopher Dodd, chairman of the Banking, Housing and Urban Affairs committee, said in a statement.

The Federal Housing Administration, set up in 1934 during the Depression, helps borrowers win favorable loan terms by guaranteeing mortgage payments to lenders.

During the recent housing boom, low-income borrowers turned away from FHA loans which were generally more cumbersome than subprime loans offered entirely by the private sector.

Under existing FHA rules, loans over $362,000 are not eligible, which has effectively eliminated the program along the East and West Coasts where house prices are higher.

The federal program also requires borrowers to make a substantial downpayment while many subprime lenders, until recently, offered 100 percent financing.

Dodd, a Connecticut Democrat, wants to loosen some loan underwriting standards while Republicans have expressed concerns that too much liberalization could cost the government if the mortgages it underwrites were to fail.

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