A bill that would allow the government to guarantee up to $300 billion in refinancing activity tied to distressed mortgages passed a key vote Thursday in the House of Representatives Financial Services Committee, after being approved by a wide margin of 46 to 21. The bill — H.R. 5830, the FHA Housing and Homeowner Retention Act — would expand the Federal Housing Administration’s current mortgage program for a two year timeframe, in an effort to help refinance at-risk borrowers into what bill supporters called “viable mortgages.”

The bill also requires the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism.

“It is important that we reduce the number of foreclosures both as a matter of alleviating the pain for some individuals and stabilizing some neighborhoods,” said Committee Chairman Barney Frank (D-MA). “It is my hope that this legislation will restore some stability to the housing market, put liquidity back in the market, and not interfere with the market, but help restore it.”

Frank also said servicers needed to “put a pause in some foreclosures” while the bill was being considered by Congress, and even threatened to bring a heavy legislative hand to future lawmaking should mortgage servicers fail to put borrowers into the refinancing program the bill would create.

“If after this we continue to get very little participation by servicers, I can guarantee you that the servicer industry will look very different a year from now than they do today,” he said.

“If after everything we do in this cooperative way falls short, then you are going to see legislation that puts some very real restrictions on the role of servicers and give many more rights to the borrowers.”

Passage not clear
Despite Frank’s threats, sources tell Housing Wire that passage of the proposed bill remains difficult to predict. While the proposal gained bipartisan support within the House committee, it remains unclear if it will receive strong support on the House floor.

Rep. Spencer Bacchus (R-AL) last week signaled Republicans’ official opposition to the FHA reform bill, during his opening remarks when the House panel began debate on the measure.

Thursday, Rep. Tom Price (R-GA) said that the proposed bill represents a bail-out for banks and borrowers alike.

“A dangerous bailout ideology has blossomed under the Democrat leadership in Congress,” he said in a press statement. “This fatally flawed proposal asks already-stretched taxpayers to insure the riskiest mortgages in the marketplace.

“We should not ask the overwhelming majority of Americans meeting their housing obligations to assume the risk for banks and borrowers who entered into unwise mortgage arrangements.”

White House officials have also signaled that President Bush would be likely to veto the measure, should it successfully receive Congressional approval.

President Bush himself even took a hard line with various housing aid proposals earlier this week, saying that many of the proposals under consideration “simply look like political statements,” and suggesting that Congress has “failed” on housing and mortgage aid.

Despite formal Republican opposition, Thursday’s committee vote signals that at least some Republicans may be ready to break from party ranks on key housing measures now being debated on Capitol Hill. That swing party vote, sources tell HW, will be critical in determining where Frank’s FHA refinance proposal goes next.