Lawmakers are proposing various kinds of mortgage crisis bailouts or rescue plans, and most suggest that the government get more involved in helping to relieve the burden of bad loans. That basically means that Uncle Sam will invest our tax dollars in the mortgage business.

Last fall, the federal government began to assume a more proactive role in resolving the burgeoning foreclosure crisis. Many changes involved expanding the role to the Federal Housing Administration (FHA) in insuring loans. In effect, this means that the FHA guarantees higher numbers of more risky mortgages against potential losses. This basically makes Uncle Sam a third-party mortgage investor who's willing to put good money against some extremely bad loans. The money being used is, of course, taxpayer dollars. But many government officials contend that it's the best way to stem the tide of foreclosures and reverse the costly housing crisis. In the long run, they believe, taxpayers stand to lose more if the government doesn't get more involved in the mortgage business.

Democrats propose bailout

Democrat Barney Frank, who chairs the Financial Services Committee, is pushing a major bailout provision that has met with enormous resistance. Representative Frank's rescue plan would give permission to the FHA to insure $300 billion worth of mortgage refinance loans for those facing foreclosure. To help subsidize the program, the FHA would charge some added fees to borrowers, and would also levy a fee on profits gained by homeowners who sell within a short time after taking out the FHA loans. The fee is meant to discourage investors who "flip" properties in a rising market. Penalties would decline over time, but would start out at 100 percent of profits made in the first year, or 80 percent of profits from sales in the second year. After five years, they would level out as a 3 percent "exit fee" imposed on equity gained from home sales.

Republicans risk averse

Republicans strongly oppose the Democratic package, because it would expose taxpayers to excessive risk. One of the biggest reasons for criticism of Representative Frank's bill is that it would involve relaxing the underwriting standards of the FHA. In order to help bailout homeowners, the FHA would obviously need to offer refinancing to those who are already in trouble. But borrowers facing foreclosure-the primary demographic targeted by the $300 billion effort-aren't considered good candidates for a loan because they're already behind on their payments, and many owe mortgage balances that exceed the value of their homes.

Officials launched a new refinance initiative called FHASecure. But under FHASecure guidelines, borrowers must have good credit, and lenders aren't required to take losses on existing mortgages. The more comprehensive rescue effort that many distressed homeowners want-and urgently need-is still mired down in political debate. Uncle Sam may become a major player in the loan refinancing game, but not in time to help those who already face imminent loss of their homes.