Senators Seek to Provide Aid on Mortgages

By Vikas Bajaj, New York Times

Three Democratic senators yesterday proposed using $300 million in federal funds to help refinance troubled subprime mortgages and introduced a bill that would require brokers and lenders to act in the interest of borrowers.

The proposal, which includes policies that the mortgage industry has opposed in the past, is the first major legislative push to deal with problems in home loans made to people with weak, or subprime, credit. Since the start of the year, the issue has been the subject of many hearings in Congress but few bills.

It is unclear whether the legislation proposed by the senators, Charles E. Schumer of New York, Sherrod Brown of Ohio and Bob Casey of Pennsylvania, will become the legislative vehicle to address the issue. Some, though not all, of their prescriptions dovetail closely with ideas that have been discussed by Representative Barney Frank, Democrat of Massachusetts, who is chairman of the House Financial Services Committee, who is expected to file a bill this summer to deal with predatory lending practices.

The $300 million will be given to nonprofit housing groups to refinance the debts of borrowers who are in danger of losing their homes to foreclosure. The senators said that as many as 900,000 homeowners could be helped if the industry matched the funds at a 2-to-1 ratio.

But it was unclear what standards would be used to make the loans and how the nonprofit groups would deal with loans where appraisals, borrowers’ incomes and other important characteristics had been overstated.

The senators’ effort to require mortgage brokers and lenders to act in the best financial interest, or as a fiduciary for, borrowers is likely to face significant opposition from lenders and brokers. The Mortgage Bankers Association said yesterday that the requirement would make mortgages more expensive and limit borrowers’ choices.

Mr. Schumer said that the requirement would impose the same standard on brokers and mortgage companies, which make a majority of subprime loans, that applies to traditional banks. “The subprime market is the wild west of mortgages,” he said, “and what we are trying to do is bring the sheriff to town.”