Rep. Barney Frank and Sen. Chris Dodd “calls for up to $300 billion in loan guarantees from the Federal Housing Administration to refinance loans that homeowners can’t afford as long as the original lender reduces the principal on the loan to 85% of the home’s current market value.”

“Backers say borrowers would get out from under unworkable debt and original lenders would get back more than they would foreclosing. It would also prevent 1.5 million foreclosures and halt home-price declines since it would keep more houses from flooding an already battered market.”

A Yale economist, Robert Shiller “thinks the plan will do little to stop the slide in housing prices.”

“Shiller notes that prices shot up 85% when adjusted for inflation from 1997 through mid-2006 and have fallen only about 15% since then.

Shiller adds that when compared to measures such as rents and household income, housing prices are still out of equilibrium.”

In addition, the FHA would be left with a large portfolio of loans backed by houses worth less than the mortgage. In other words, instead of banks facing foreclosure risk, the government (and hence taxpayers) would be on the hook for billions of dollars in bad loans.”

Here is a link to the full article:
http://money.cnn.com/2008/04/22/news/economy/housing_rescue/index.htm

Michelle