Profits from government-sponsored mortgage giants Fannie Mae and Freddie Mac, instead of taxpayers, would back up a home loan rescue for up to 500,000 strapped borrowers under a plan approved by a key Senate committee Tuesday to pull the nation out of a housing crisis.
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The bill also tightens regulation of Fannie Mae and Freddie Mac, which would finance a new affordable housing fund that would temporarily be used to pay for the foreclosure prevention program.
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Borrowers would have to show they could afford the new loans, and to share with the government half of their new equity and any future proceeds from selling or refinancing again. Mortgage holders would have to write down the existing loans at a substantial loss, in exchange for avoiding a costly foreclosure.