Dems fend off GOP challenges to mortgage relief bill

WASHINGTON (CNN) -- A bill meant to help homeowners caught up in the spreading mortgage crisis received committee approval Thursday after Democrats fended off numerous Republican challenges to the bill.

The bill would authorize the Federal Housing Administration to guarantee up to $300 billion in new mortgages offered by government-approved private lenders.

House Financial Services Committee passed the bill on a vote of 42 to 21. The full House is expected to take up the measure next week, committee aides said.

The committee estimates the program could help 1.5 million homeowners who are having difficulty paying their mortgages.

Committee chairman Rep. Barney Frank, the main author of the bill, says the millions of individuals who might face foreclosure because of the expanding credit crisis deserve help, even if they made a mistake by borrowing beyond their means. Read who would qualify »

"There are people who made loans that should not have been made; there are some people that were wrong to take the loans out, some wrong to make the loans. If nothing happens and all those loans go under foreclosure, the economy suffers," he said. Watch a homeowner plead for mortgage relief »

On Wednesday the Democratic members of the House Financial Services Committee defeated several GOP amendments to the proposal.

GOP amendments proposed to excluded people with bad credit, limited the program to low- and middle-income borrowers, and eliminate a requirement that lenders accept losses were all defeated on mostly party-line votes.

Some congressional Republicans also oppose Frank's proposal, saying it essentially forces one neighbor to pay for the mistakes of another.

"It's not fair to ask the American taxpayer to insure loans to the riskiest borrowers, who may not be able to pay their mortgages no matter what," J. Gresham Barrett, R-South Carolina, told The Associated Press.

The Bush administration also "strongly opposes" the legislation, calling the bill a "bailout." The administration expressed its objections to the legislation in a letter send last week to Franks.

The bill would not authorize the government to loan money directly to homeowners, but rather to guarantee new mortgages offered by government-approved private lenders. The new mortgages could at most equal 90 percent of a home's current value.

Only homeowners who have a mortgage-debt-to-income ratio of 35 percent or higher and who entered into a mortgage before January would qualify for the program.

For a homeowner to get a new FHA-backed loan, the holder of the current mortgage would have to accept a loss and take a payment totaling no more than 85 percent of the home's value.

The government would also get a share of profits if the homeowner sold the house in the future and would have to pay the lenders only if homeowners defaulted on FHA-backed mortgages. The Financial Services committee estimates that 1 to 2 percent of the new loans would default, costing the government between $3 billion and $6 billion.

The administration touted existing FHA programs, including the FHASecure plan the president announced in August, calling them "simpler and more targeted" ways to help homeowners who are behind in their mortgage payments.

The administration says the FHASecure program will help half a million homeowners by the end of the year. E-mail to a friend

CNN's Lesa Jansen contributed to this report.

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