White House says mortgage coalition to help borrowers

WASHINGTON - The Bush administration introduced a new mortgage industry coalition yesterday aimed at helping homeowners avoid being trapped in a rising tide of foreclosures.

Treasury Secretary Henry Paulson said the initiative would boost financial companies' efforts to help an estimated 2 million homeowners whose introductory mortgages with low rates are resetting at much higher rates, just as the housing industry suffers through its steepest downturn in 16 years.

The House pursued its own plan for helping homeowners, passing a bill to create a federal trust fund to finance construction and rehabilitation of affordable housing. The measure would provide between $800 million to $1 billion a year with the goal of creating 1.5 million affordable housing units over the next decade by funding grants to a variety of housing providers.

The trust fund would be financed mostly from the profits of Fannie Mae and Freddie Mac, the chief US buyers and guarantors of mortgages.

President Bush has threatened to veto the measure. The White House and conservative Republicans argue that it would duplicate a program at the Department of Housing and Urban Development. GOP lawmakers said siphoning money from Fannie Mae and Freddie Mac would amount to a tax on middle-income home buyers.

The new mortgage industry coalition promoted by the Bush administration includes 11 of the largest mortgage service companies, representing 60 percent of all mortgages in the country. Other members are mortgage counseling agencies, investors, and large trade organizations, and Paulson urged more mortgage service companies to join the effort.

"We need greater participation if we are going to get to all those that need help as quickly as possible," Paulson said at a joint news conference with Housing and Urban Development Secretary Alphonso Jackson.

The new initiative, dubbed HOPE NOW, follows an Aug. 31 disclosure by Bush that the administration was changing the Federal Home Loan Administration insured-loan program so more people could qualify for FHA-insured loans.

Democrats said the initiative still falls short of what is needed given the foreclosure crisis facing the country.

Senator Charles Schumer, New York Democrat, said the National Association of Realtors yesterday revised down once again its forecast for home sales, predicting sales of existing homes will fall 10.8 percent this year, a bigger drop than the 8.6 percent decline it forecast just a month ago.

"Unfortunately, the bottom is falling out of our housing market much more quickly than the administration is willing to stem the tide of foreclosures," Schumer said in a statement.

Schumer and other Democrats in Congress are pushing legislation aimed at helping more people avoid losing their homes. Some of the bills also would attack predatory lending practices that critics see as a prime cause for the crisis.

Sheila Bair, head of the Federal Deposit Insurance Corp., suggested last week that mortgage service companies consider doing broad-based conversions of adjustable-rate loans to fixed-rate loans if the borrowers were current on their payments and living in the homes.

Estimates are that mortgages resetting from low "teaser" rates could mean an extra $250 to $300 in monthly payments on the typical $1,200 monthly mortgage payment.