UPDATE 2-U.S. lawmaker unveils mortgage modification bill

* Blanket plan would allow homeowners to refinance

* Not likely to get a vote soon

* Total cost not yet determined

(Recasts, adds market reaction, administration quote, etc)

By Corbett B. Daly

WASHINGTON, Sept 28 (BestGrowthStock) – As many as 30 million U.S.
homeowners would be able to refinance their mortgage at record
low interest rates regardless of their credit situation under a
plan unveiled on Tuesday by a Democratic lawmaker.

The legislation would allow for blanket 30-year, fixed-rate
mortgages at the prevailing market rate, now around 4.3
percent, for anyone seeking to refinance a government-backed
loan, Representative Dennis Cardoza told Reuters on Tuesday.

Homeowners could refinance irrespective of their income,
credit history or loan-to-value ratio.

The plan, which faces an uphill battle in Congress, would
help a wide swath of borrowers and is more comprehensive than
the narrowly targeted efforts President Barack Obama has tried
to date.

“I’ve been terribly frustrated with the administration,”
the California Democrat and outspoken critic of Obama’s housing
rescue efforts said.

The Obama administration’s marquee foreclosure prevention
program, the Home Affordable Modification Program, has been
widely criticized as ineffective. Fewer than 450,000 borrowers
have received permanent loan modifications under the plan.

Cardoza’s bill is modeled after a proposal from former Bush
economic adviser Glenn Hubbard and Chris Mayer, a colleague of
Hubbard’s at the Columbia Business School.

As it now stands, many borrowers are unable to take
advantage of historic low mortgage rates because of falling
home values, declining incomes and tight lending standards.

Cardoza wants to change that dynamic. His plan would direct
agencies that support the housing market to refinance existing
mortgages at current market rates. Such agencies include Fannie
Mae (FNMA.OB: ), Freddie Mac (FMCC.OB: ), Ginnie Mae, the Federal
Housing Administration and the Department of Veterans Affairs.

The plan would not subsidize writedowns of principal
balance for homeowners who owe more than their home is worth.
But it would allow those “underwater” borrowers to refinance
homes and get the benefit of a lower monthly payment.

Still, prospects for the bill are far from certain.

With congressional elections looming on Nov. 2, lawmakers
are unlikely to have time to consider the bill before leaving
Washington in early October to hit the campaign trail.

The administration opposed a 2009 effort by Cardoza to
allow homeowners to refinance at what was then a below-market
fixed 4.0 percent rate, the lawmaker said.

The White House and Treasury declined to comment on his
latest proposal. Obama was asked on Tuesday at a campaign style
event in New Mexico what the government was doing to prevent
veterans and others from losing their homes.

“This is a multitrillion-dollar market, so there’s no
government program where we can just make sure that whoever is
losing their home that we can just pick up the tab,” Obama told
the questioner who said he worked for the New Mexico Veterans
Administration health care system.

“We’ve got to get back to sort of a traditional, more
commonsense way of thinking about housing which is, if you want
a house you got to save for a while. You got to wait until you
have 20 percent down,” Obama added.

It was also unclear how much support the bill might garner
from leading House Democrats, though a House Democratic
leadership aide said “it’s a good bill.”

Cardoza, a prominent member of the conservative “Blue Dog”
Democrats, said his new plan would not be as costly as his
earlier proposal because it is based on market rates, currently
about 4.3 percent.

Scott Buchta, head of investment strategy at Braver
Sterns Securities in Chicago, noted prices for mortgage-backed
securities spiked lower before recouping some losses after news
of Cardoza’s plan became public.

“The one big problem with a plan like this is you assume
you can refinance at today’s levels. But there is limited
capacity to process all those loans, and then, who is going to
buy them all? Rates would have to rise in order to find a
clearing level for all the new MBS,” said Buchta.
(Additional Reporting by Al Yoon in New York and Tom Ferraro
in Washington. Editing by Andrew Hay)

UPDATE 2-U.S. lawmaker unveils mortgage modification bill