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Why Congress passed foreclosure rescue

Associated Press

The foreclosure rescue moving through Congress would let financially strapped homeowners who would normally be considered too debt-ridden to qualify for safe, government-insured mortgages refinance their home loans through the Federal Housing Administration to get more affordable loans with lower monthly payments.

It would help those who have seen their mortgage rates balloon just as their home values are plummeting, allowing them to keep their homes if they show they can make the payments on a new loan.

It also carries substantial benefits for banks and other mortgage holders, which could avoid often-costly foreclosures. After taking some loss on their existing loans to homeowners, the lenders would be assured of a government payoff if their new replacement loans turn sour. The bank would have an incentive to put mortgages into the program in cases in which the losses they face are smaller than what it would cost to foreclose.

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