White House Unveils Foreclosure Aid

As Senate toiled away drawing up a bipartisan plan designed to stave off the effects of the credit crisis, the Bush administration on Wednesday announced plans to help homeowners fend off foreclosure.

The plan is designed to rescue 100,000 homeowners at risk of foreclosure by relaxing eligibility standards for government backed loans as well as encouraging lenders to forego a portion of their debt.

The proposal outlines plans to help subprime borrowers who have missed several mortgage payments and cannot afford their loans to be eligible for assistance from the Federal Housing Administration (FHA).

The FHA provides mortgage insurance to borrowers through a network of private lenders. The agency charges borrowers insurance premiums and the premiums provide the FHA with reserves to cover defaults.

The move has been heavily criticized by consumer groups, who claim it will do little to slow an industry in meltdown mode as over 1.5 million households were thrown into foreclosure last year. Key Democrats on the other hand have welcomed the move by claiming the White House is acknowledging that more aggressive government action is needed to help the hardest hit borrowers who owe banks more than their homes are worth as a result of plunging prices.

The Bush administration has already helped about 130,000 home owners refinance their subprime loans under the FHA Secure program. By the end of the year, they hope to have helped 500,000 homeowners avoid foreclosure.