The U.S. Senate on Friday overwhelmingly approved a bill aimed at making affordable, federally insured loans available to hundreds of thousands of borrowers who are in danger of losing their homes to foreclosure.
By a vote of 93 to 1, lawmakers passed a White House-backed measure that would allow the Federal Housing Administration to reduce required down payments on the federally insured loans. The FHA also would be allowed to cover larger loan amounts -- a change aimed at states such as California with high housing costs.
A similar measure has already passed the House, increasing the chances of final passage in the near future. The bill will almost certainly be signed by President Bush, who has previously called for such measures.
"It was past time to approve a proposal like this that can help a good number of Americans save their homes," said Sen. Charles Schumer (D-N.Y.). "This is a good first step in the larger effort to bring relief to distressed homeowners trapped in the mortgage mess."
The Senate vote comes as political leaders are increasingly anxious over the economic fallout from rising foreclosures linked to adjustable loans that are scheduled to reset next year.
The Bush administration last week announced a voluntary initiative in which major lenders would freeze the interest rates on many mortgages held by borrowers who have made their payments on time and occupy their homes but cannot afford impending rate hikes.
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, recently introduced a bill that would overhaul lending standards. The House already has passed such a measure.
And this coming week, the Federal Reserve plans to propose a new set of rules that officials have said would increase consumer protections without cutting off the flow of credit.
In a letter to Rep. Brad Miller (D-N.C.) Fed Chairman Ben S. Bernanke said regulators also planned to strengthen loan disclosure rules "so that consumers can get the information they need when it is most useful to them. We will also consider the need for improved disclosures concerning mortgage brokers and how they are compensated."
Under the legislation that passed the Senate on Friday, down payments required for FHA loans would be cut in half from the current 3% of the loan amount.
The federal agency also would be able to approve loans of up to $417,000, up from the current level of $362,790.
Though some have opposed easing up on FHA requirements, supporters have urged such a policy as an effective option for helping beleaguered borrowers.
The proposed changes "will have an immediate impact helping some distressed borrowers who are having trouble paying their current mortgages avoid foreclosure," David G. Kittle, chairman-elect of the Mortgage Bankers Assn., said in a statement Friday.
"The fact of the matter is that FHA, due to statutory constraints, has not been able to keep pace with changes in the housing markets. This legislation will allow FHA to be more efficient and timely in meeting the needs of borrowers -- which is especially important during this time of market turmoil."
An FHA bill that passed the House in September has several technical differences from the Senate version, including higher loan caps, but House advocates Friday applauded the Senate vote.
Rep. Barney Frank (D-Mass.), chairman of the House Committee on Financial Services, said he welcomed the Senate vote and looked forward to ironing out the differences between the chambers.
"We are in agreement that this is an important action in dealing with our sub-prime challenges, and that we should act quickly so that the FHA can be a resource for people who can refinance their loans," Frank said.
But even supporters of the bill said Friday that it was just one step toward easing a predicament in which almost 2 million borrowers may have trouble holding on to their homes in the coming years.
On Friday, Sen. Dick Durbin (D-Ill.) repeated his call to reform bankruptcy laws so that it would become easier to modify mortgages on a debtor's primary residence.
"Passing FHA reform may help families who are at risk of losing their homes," Durbin said. "But the Senate should not believe that because we passed this bill today, our work is done. We must do more."