Bush Backs More Support for Homeowners

By DAMIAN PALETTA and JOHN D. MCKINNON
Wall Street Journal
April 8, 2008 6:19 p.m.

WASHINGTON -- The Bush administration appears set to support a significant expansion of its assistance for struggling homeowners, a move that could also forestall more aggressive action currently being contemplated by Democrats in Congress.

In a draft of testimony for a congressional hearing, Brian Montgomery, the commissioner of the Federal Housing Administration, is expected to say that a federal program that offers government insurance for mortgages created last summer "can and should be extended in a responsible way."

Many of the details about the expansion are not clear, but it seems likely that the program could become the administration's most aggressive response to the housing crisis, which has prompted Washington to reverse years of laissez-faire attitudes toward the economy.

The expansion would be focused on helping struggling homeowners who owe more than their house is worth.

Under the expanded program, lenders could get FHA insurance for problem loans in exchange for "voluntarily writing down the outstanding mortgage principal," according to the testimony. That would entail the government being responsible for an increasing number of risky loans.

Mr. Montgomery emphasizes in the testimony that "while considering any changes to FHA, we must ensure that the financial solvency of the [FHA] must not be compromised." FHA is a division of the U.S. Department of Housing and Urban Development, which didn't return calls seeking comment.

Under the original program created last year, known as FHASecure, homeowners with high-interest, adjustable-rate mortgages currently can refinance into an FHA-insured mortgage and lower their monthly payments. To date, the administration says it's served 145,000 homeowners in need, and projections show that it will likely reach more than 400,000 by year's end. A temporary expansion of the program would be expected to add significantly to that total.

The moves highlighted the deep political fault lines emerging in Washington over the housing market. Both the Republican Bush administration and Democrats in charge of Congress are eager to be seen addressing the problem. But both have ideological objections to the other side's approach so far, and both see potential advantage in casting the other side as intransigent and out of touch.

The administration proposal appeared calculated to put a conservative White House imprimatur on a basic concept that Democrats also have been weighing – using the government's power to induce lenders to reduce payments for struggling homeowners, while also providing some government guarantee that the loan, or most of it anyway, will be repaid. The administration's approach is likely to be narrower in terms of the number of homeowners who could qualify.

Write to Damian Paletta at damian.paletta@wsj.com and John D. McKinnon at john.mckinnon@wsj.com