Markets continue to come back after US Rep Frank Unveils New Measure To Help Troubled Homeowners

S&P: -3.5 Dow: -40.3 Nas: -4.8

By Michael R. Crittenden Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--House Financial Services Chairman Barney Frank Thursday unveiled a draft of a new proposal to help troubled homeowners, including up to $300 billion in new federal guarantees to refinance borrowers into more affordable loans.
Frank, D-Mass., had previously outlined the major components of the bill, but Thursday's draft summary gave greater detail. Frank has noted that the final terms of the bill could change over the next few weeks as he receives feedback from lenders, housing advocates and financial regulators.
The effect of the federal guarantees, which would be made through the Federal Housing Administration, is uncertain because they would require lenders and the holders of mortgages to agree to write down either the principal or interest rate on an existing loan.
Under the program, either a borrower or loan-servicing company would contact an FHA-approved lender to determine the size of the loan that would fit with program guidelines and the borrower would be able to repay. If the holder of the loan then agreed to write down the loan to the new level, the FHA-lender would pay off the value of the discounted mortgage.
The legislation includes a number of restrictions so that real estate speculators and investors wouldn't benefit by having their loans reduced. It would cover only loans made between January 2005 and July 2007, and would be limited to owner-occupied principal residences - no second homes.
In an effort to limit the cost to the federal government, the measure would also require borrowers involved in the program to pay up to 3% of the value of the refinanced mortgage loan when they sell their homes.
The other major aspect of the legislation would provide up to $10 billion in loans and grants to states to purchase and rehabilitate vacant, foreclosed homes. Eligibility for the funds would be based on a state's foreclosure rate and median home price.
Frank has said the goal of providing the funds would be to allow the states to quickly resell or rent the properties. His proposal would limit the resale of homes to families whose incomes are below 140% of the area median income, while rentals would have to serve families whose incomes are below the area median.
The legislation calls for the loans to be repaid from the proceeds of a resale or rental. The federal government would also receive 20% of any appreciation a property owner realizes when reselling the property.
By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com
Dow Jones NewswiresÊ March 13, 2008 11:51 ET (15:51 GMT)Ê Copyright (c) 2008 Dow Jones & Company, Inc.- - 11 51 AM EDT 03-13-08