A Look at Congress's Long-Promised, Long-Delayed Mortgage Relief

After six months of haggling and political gamesmanship, a massive housing relief bill is heading for final approval.

Although it has hundreds of pages and contains dozens of initiatives, including revamping federal oversight of the mortgage giants Fannie Mae and Freddie Mac, the centerpiece is a $300 billion program, called Hope for Homeowners, designed to provide refinancing lifelines to as many as 400,000 homeowners in deep trouble on their loans.

But what are the specifics? Who would be able to qualify for help? How quickly would Hope be up and running, and how long would it run? Are there any key drawbacks or limitations?

Congress's basic idea is to save people on the edge of the waterfall: families and individuals at immediate risk of losing their homes but who could avoid foreclosure if their mortgage balances and interest rates were significantly reduced.

The program would be entirely voluntary -- and that's a crucial limitation. Lenders and investors who own defaulting mortgages would not be compelled to let their borrowers refinance. If they conclude that they're likely to lose less by allowing delinquent borrowers to go to foreclosure rather than refinance into Hope loans, they would be free to do so, even if their borrowers qualify and want to participate.

Lenders would have to agree to substantially write down principal and penalty fees. The new maximum Hope loan amount -- insured by the Federal Housing Administration under a special fund created by the legislation -- would be 90 percent of the current market value of the property, not the value of the house when the lender originally made the loan.

Plus, the FHA would impose an upfront insurance fee of 3 percent of the new loan amount, payable out of refinancing proceeds that would otherwise go to the original lender. Lenders would also have to clear away any potential issues with holders of second liens on properties -- typically banks that have extended equity credit lines or second mortgages and have a claim on any refinancing proceeds -- before participating in the Hope plan.

There are important hurdles borrowers must get over to qualify, as well. They must:

· Demonstrate a "lack of capacity" to pay their current mortgage but have enough income to make regular monthly payments on a smaller, fixed-rate FHA loan. Their mortgage-debt-to-income ratio must be above 35 percent.

· Certify to the government that they haven't "intentionally defaulted" on their current mortgage or any other debt in order to refinance into a Hope loan. They must also certify that they are telling the truth about all aspects of their financial status and have never been convicted of fraud. Anyone who lies on the application will be subject to severe penalties, including a prison sentence of up to five years.