In an op-ed piece published this weekend by the Washington Post, House of Representatives Financial Services Committee Chairman Barney Frank said that a “housing rescue” was needed, and argued that the Federal government needed to step in to help “misled” borrowers. Frank said that the committee he chairs is now drafting legislation to “limit the damage done by a record number of foreclosures.” Numerous media outlets last week covered the expected plan, which will likely include a government agency to manage distressed assets. Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) originally proposed the creation of a such an agency, the so-called Federal Homeownership Preservation Corporation, that would purchase distressed mortgages and refinance troubled borrowers into FHA-insured mortgages. From the WaPo and Rep. Frank, some details on the pending proposal:

In concept, we propose to tell those who either originated or purchased mortgages that are now extremely unlikely to be repaid that they should write down their existing obligations to a level that represents current market value. After — and only after — the loss is taken, the government would facilitate refinancing mortgages for homeowners who could meet repayment obligations at the new, written-down level. Of course, not all borrowers would be able to refinance, but the number of foreclosures could still be substantially reduced. This plan would use the Federal Housing Administration’s authority to guarantee certain loans to induce a renewed willingness to lend by private entities that are either unwilling or unable to do so. Some will object that this is “bailing out” people who made mistakes. Yes, some people borrowed imprudently. On the other hand, though, it is clear that many of the people in this situation were misled, were deceived or were in other ways the victims of unfair lending practices.