House of Representatives passes Democratic home mortgage bill backed by the Fed and banking industry

The bill passed by a vote of 266 to 154, with 39 Republicans joining with all but six House Democrats to support the measure. President Bush on Wednesday announced that, should a similar measure be passed by the Senate, he would veto the bill. The upper legislative chamber is scheduled to consider its version of the bill next week.

The House bill, authored by Massachusetts Representative Barney Frank, the chairman of the House Financial Services Committee, is carefully tailored to marginally reduce the flood of home loan defaults and foreclosures, at a minimal cost to the government, so as to stabilize the housing market and stem the losses suffered by banks and financial institutions from the collapse of subprime mortgage-backed securities.

The main provision of the House bill calls for the Federal Housing Administration (FHA) to guarantee up to $300 billion in refinanced home loans. Home owners with subprime and adjustable rate mortgages, who demonstrated their ability to pay off a refinanced loan, would have the principle on their loans reduced and the debt converted to a thirty-year, fix-rate mortgage, resulting in lower monthly payments.

Home owners who received refinanced mortgages and subsequently sold their homes would be forced, under the plan, to pay the government a portion of the profit, if any, they made from the sale.

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