Mortgage Foreclosure & Refinance Resource

Update: We missed this earlier from the announcement but Dodd also announced that Freddie Mac would purchase up to $20 billion in fixed-rate and hybrid Adjustable Rate Mortgage (ARM) products that will assist families affected by the subprime crisis and help make the market safer for all borrowers.

Senate Banking Committee Chairman Christopher Dodd proposed creating a federal program to buy “very distressed” mortgages at steep discounts as part of economic stimulus legislation being developed in Congress.

The Federal Homeownership Preservation Corp. would buy loans and finance them as 30-year fixed-rate mortgages to help keep borrowers from losing their homes. Dodd’s proposal is modeled on the Depression-era Home Owners’ Loan Corp., The program would ensure lenders and investors “take a haircut” and are not being bailed out, Dodd said in the letter.

The proposed corporation would buy outstanding mortgages at “steep discounts” and convert them into loans insured by the Federal Housing Administration or backed by government-sponsored enterprises, he wrote to Reid. Dodd proposed $10 billion to $20 billion to fund the program.

The stimulus package should also let Fannie Mae and Freddie Mac, the largest funders of U.S. home loans, temporarily buy mortgages exceeding a $417,000 federal limit, Dodd said. U.S. Treasury Secretary Henry Paulson has said an increase of the loan limit for Fannie Mae and Freddie Mac should only accompany creation of a tougher regulator for the government- chartered companies. The Bush administration has sought since 2003 to persuade Congress to pass such oversight legislation.

Dodd plans hearings on mortgage-related issues in the coming weeks. The first will focus on ways to reduce foreclosures; another will probe lenders’ efforts to modify loans for borrowers facing foreclosure. The nine largest mortgage servicers modified loans or set up repayment plans for 370,000 subprime borrowers in the second half of last year, according to a report last week by Hope Now, a Washington-based coalition of banks and mortgage companies.

Dodd said he will also hold hearings on legislation to crack down on predatory mortgage lending and move the measure through the Senate “at the earliest opportunity.”