Delahunt, Hodes seek more aid for homeowners

By Jenny Paul, Globe correspondent

WASHINGTON — Two Democratic House members from New England have introduced legislation that would allow the government to force some mortgage lenders to renegotiate loans for homeowners facing foreclosure.

Representatives William Delahunt of Quincy and Paul Hodes of New Hampshire said today the bill would give bankruptcy judges the authority to modify mortgages on primary residences, a provision that didn’t make it into the final $700 billion bailout Congress passed in October. It also would require more lenders to restructure the terms of troubled mortgages as well as place caps on executive compensation and stock options.

“At the heart of the current economic crisis is the explosion of subprime and predatory lending that has forced millions of homes into foreclosure,” Delahunt, who voted against the Wall Street rescue plan, said in a statement. “This legislation requires the modification of these questionable mortgages and gives bankruptcy judges the authority, if necessary, to modify mortgages and prevent as many as 600,000 foreclosures.”

Banking industry leaders, however, argue that the proposal would heighten risks for lenders and increase costs for borrowers. The Mortgage Bankers Association, a trade organization, estimates that if it became law the bill would push mortgage rates up by at least 1.5 percentage points.

If the bill becomes law, it would require several federal agencies and departments --including the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation -- to restructure all home loans that they own or in which they have a controlling interest. Current language in the bailout package simply encourages those agencies to renegotiate mortgages.

The bill also would force lenders to participate in the government’s HOPE for Homeowners program, which helps qualified, at-risk borrowers to refinance current loans into fixed-rate, government-insured mortgages. The program, which took effect Oct. 1, is currently voluntary, but so far has not garnered many applications from consumers or support from mortgage lenders, who must take a loss when they write down the principal of a loan as part of the program.

The program is “taking a while to get into gear, and the voluntary nature of it gives lenders and servicers an out,” Hodes said in an interview. “It was hoped that the lure of voluntary workouts and the advantages of working out instead of having to go through the expensive lengthy foreclosure process would be the bait that would lure the servicers and lenders into the program. I think we need to be more aggressive about it. That’s one of the underlying reasons for this bill.”

Delahunt and Hodes said they would reintroduce the bill in January if Congress fails to consider it in a lame-duck session scheduled for next week.