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Bailout: What's in it for Homeowners
Sunday's revised plan calls for the Treasury to work with loan servicers to stem the tide of foreclosures, but how that will happen remains unclear.

NEW YORK (CNNMoney.com) -- The revised $700 billion bailout legislation unveiled Sunday calls for the Treasury Secretary to implement a plan to stem foreclosures and to work with servicers to modify loans.

But some community advocates say the bill offers little help for struggling homeowners. They argue that the financial system, as well as the economy, cannot recover until the tide of foreclosures stops.

In particular, critics chastised lawmakers for not including a more powerful provision, which would allow bankruptcy judges to modify loans.

Since the bailout was announced a week ago, lawmakers and the Bush administration have tussled over how much to help borrowers who have fallen behind in their mortgage payments.

In Sunday's version of the bill, federal agencies holding mortgages and mortgage securities would be required to identify loans that could be modified without causing big losses for taxpayers. However, exactly how that would be done isn't totally clear.

In addition to the Treasury Department, these agencies would include the Federal Reserve, Federal Deposit Insurance Corp., and the Federal Housing Finance Agency, which controls mortgage insurers Fannie Mae and Freddie Mac.

It also allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures, though on a press call Treasury officials declined to elaborate on these provisions.

Avoiding “preventable foreclosures”
Servicers have been under pressure to modify loans since the mortgage meltdown began a year ago. However, they say the biggest roadblock to changing loan terms are the investors who hold the securities created from those mortgages.

As the owner of a large number of mortgage securities, the federal government would have the power to modify more troubled loans, said Treasury officials. The government may also buy the mortgage loans themselves from banks, which it can adjust more easily.

The government would try to avoid "preventable foreclosures" in a way that "makes sense for taxpayers," the officials said.

"We will have a lot of influence," they added.

The legislation also calls for changes to strengthen the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures, but did not specify the enhancements. The Hope for Homeowners program, which begins Oct. 1, allows borrowers who can't meet their current mortgage terms to refinance into more affordable, fixed-rate loans backed by the Federal Housing Administration.

But although the bill has bi-partisan support, not everyone is happy.

"There is nothing in the bailout that will mitigate widespread damage caused by foreclosures," said Michael Calhoun, president of the Center for Responsible Lending.

"The bill includes a vague provision that calls for the government to buy mortgages and securities and then try to modify them, but this will have very limited impact. It doesn't stop the epidemic that will continue to drag down property values for everyone."