Many taking action to soothe housing crisis

WASHINGTON -- The Bush administration, Congress and the Federal Reserve are moving on separate tracks to calm troubled housing and financial markets and to help distressed borrowers.

Here are some questions and answers on the crisis, what has been done so far and the additional help that may be on the way.

Q: How did things get so bad?

A: Tumbling house prices have left many borrowers owing more on their homes than the homes are worth. With little or no home equity, these borrowers cannot refinance. That means higher payments for people with adjustable-rate mortgages. Among those who are facing foreclosure or who have lost their homes are many borrowers who had questionable credit histories and who obtained risky subprime loans.

Rising defaults have contributed to a credit squeeze that has spread throughout the financial system. That has made it harder on first-time home buyers and people seeking to refinance. It also has affected a range of financial transactions from business borrowing to student loans.

Q. What is the government doing to help?

A. The housing mess will take a while to unwind. But given that this is a presidential election year, pressure to help home- owners is growing.

The Senate, by a 82-12 vote last week, approved business tax breaks and a $7,000 tax credit for buyers of foreclosed homes. The House is hammering out its own proposal.

The administration has taken steps to help struggling home-owners, such as expanded federal mortgage assistance.

The Federal Reserve has made deep cuts in interest rates and may cut again this month. That should ease some of the financial pain as adjustable loans reset.

Q. What specifically is the administration doing?

A. It expanded a Federal Housing Administration program so more homeowners who are having trouble making mortgage payments can refinance into more affordable government-insured loans. Some 2 million people are facing foreclosure this year. The administration also authorized the mortgage-finance companies Fannie Mae and Freddie Mac to buy more home loans and brokered help for homeowners through a private-sector mortgage industry group.

Some lenders have agreed to offer a five-year rate freeze for people who have not missed payments. Also, some have offered a 30-day foreclosure pause for those behind in their payments.

Q. How about Congress?

A. The Senate-passed bill includes tax breaks and other steps to help businesses and home- owners. Tilted toward businesses, the legislation would offer $25 billion in tax relief over three years for banks and home builders. It includes a $7,000 tax credit for those who purchase -- and plan to live in -- foreclosed homes, and $4 billion in grants for communities to buy and fix up abandoned homes.

Homeowners who do not itemize their tax returns would receive property-tax deductions -- $500 for individuals, $1,000 for couples.

The House is working on its own plan, expected to come to the full House next month. Backed by Democratic leaders, it would steer tax breaks toward first-time home buyers and investors in low-income rental housing.

Q. And the Fed?

A. The central bank started reducing interest rates late last summer. It has taken the key short-term rate under its control -- the federal funds rate, which is the overnight lending rate between banks -- down to 2.5 percent from 5.25 percent. That should help lower the rate of adjustable rate mortgages that reset.

The Fed is expected to cut rates further when it meets later this month. It also has indicated it stands ready to do even more by adding money to the system, including making temporary loans totaling about $400 billion to banks.

Q. Won't housing markets eventually stabilize on their own?

A. As housing prices fall far enough to stimulate demand, the market will self-correct. But this could take some time. Recent housing-related statistics suggest things will get worse before getting better.

Q. What are the presidential candidates, all members of the Senate, proposing?

A. Democrat Hillary Rodham Clinton has proposed a five-year freeze on interest rates and a $30 billion economic aid plan to help states and local communities fight foreclosures. She would impose a foreclosure freeze on subprime owner-occupied homes. She favors increased regulation of mortgage originators.

Democrat Barack Obama has called for tighter regulation of mortgage lenders, banks and financial houses and proposes $30 billion in aid that would include $10 billion to help people avoid foreclosure.

Both Clinton and Obama support the Frank-Dodd legislation, as well as proposals to amend bankruptcy laws to aid those facing housing foreclosure. Republicans and the administration opposed changing the bankruptcy laws. The Senate also has voted against it.

Republican Sen. John McCain, after first saying he favored only a limited federal role, last week sketched out a plan designed to help 200,000 to 400,000 from losing their homes. Under the plan, the government would help these homeowners finance and get federally guaranteed fixed mortgages. Aides said the plan could cost the government from $3 billion to $10 billion. McCain did not specify who would be eligible for help. He was expected to lay out more details in a speech on Tuesday.

McCain has proposed raising the minimum down payment levels for home mortgages, even the 3 percent minimum now required by the FHA. This puts him at odds with the administration and congressional Democratic leaders, who want to lower the threshold.