Mortgage crisis grows beyond bill's reach

'It's not enough,' one analyst says

When Congress started fashioning a sweeping rescue package for struggling homeowners earlier this year, 2.6 million loans were in trouble. But the problem has grown considerably in just six months and is continuing to worsen.

More than 3 million borrowers are in distress, and analysts are forecasting a couple of million more will fall behind on their payments in the coming year as home prices fall further and the economy weakens.

Those stark numbers not only illustrate the challenges for the lawmakers trying to provide some relief to their constituents but also hint at what the next administration will be facing after the election. While the proposed program would help some homeowners, analysts say it would touch only a small fraction of those in trouble -- the Congressional Budget Office estimates it would be used by 400,000 borrowers -- and would do little to bolster the housing market.

"It's not enough, even in the best of circumstances," said Mark Zandi, chief economist of Moody's Economy.com. The number of people who will be helped "is going to be overwhelmed by the 3 million that are headed toward default."

The bill would let lenders and borrowers refinance troubled mortgages into more affordable 30-year fixed-rate loans that are backed by the government. Democratic leaders say Congress could send something to the president next month.

The White House, which initially threatened to veto the measure, has indicated that it is open to supporting the bill if certain provisions are removed.

"The Congress needs to come together and pass responsible housing legislation to help more Americans keep their homes," President Bush said Thursday.

Rep. Barney Frank, D-Mass., a central force behind the legislation, said Friday that recent reports about falling home prices have rallied support for the plan. But he acknowledged that the plan may not do enough to help homeowners or the housing market. Frank, chairman of the House Financial Services Committee, said that even after a bill like this, "you may need more."

Other proposals that have been floated in Washington include expanding the current plan to make it mandatory instead of voluntary for certain home loans, having the government buy loans outright from lenders, and providing some way and incentives to let homeowners become renters in their own homes.

But not everyone supports government interventions. Some Republicans, like Sens. Jim DeMint of South Carolina and Jim Bunning of Kentucky, say the proposal would use government subsidies to bail out reckless lenders and borrowers. They suggest that the housing market will correct itself more quickly if Congress does not intervene.

Troubles pile up

The biggest impediment to helping homeowners is the weak economy. In addition to falling home prices and risky loans, homeowners are now confronting a tough job market. The unemployment rate has risen to 5.5 percent, up from 4.9 percent in January.

Mortgage rates have also been climbing, putting more pressure on homeowners and making homes less affordable. An estimated 9 million homeowners owe more than their homes are worth and could find themselves with few options if they lose their jobs or if their mortgage bills rise substantially.

To take part in the proposed program, lenders would have to lower each debt obligation to 85 percent of the home's current value. Borrowers would stay in their homes but would have to pay a 1.5 percent annual insurance premium. If homes' values grew and borrowers sold or refinanced, they would have to share the gain with the government.