WASHINGTON (1/24/08)—Senate Banking Committee Chairman and former presidential hopeful Chris Dodd (D-Conn.) sent a letter to the Senate majority leader this week saying he wants to create a new government corporation to buy troubled mortgages and refinance them mostly into Federal Housing Authority (FHA) loans. Dodd told Majority Leader Harry Reid (D-Nev) that his plan would need up to $20 billion of President George W. Bush’s proposed economic stimulus package to act as seed money. Dodd said the primary cause of the nation’s current economic woes is the collapse of its housing market and added he believes a stimulus package must address “the problems that confront the housing market, distressed homeowners and their communities.” “I also believe that a stimulus package should address some of the labor market problems caused by the massive layoffs and downturn in the housing market. One way to stimulate this vital sector of our economy is to invest in targeted infrastructure projects,” Dodd wrote in his Jan 22 letter. He said that an additional $2 billion invested into existing transit projects would create almost 100,000 jobs. Dodd said he is currently drafting a proposal to create a Federal Homeownership Preservation Corporation to purchase outstanding mortgages at steep discounts. He said his plan would ensure that lenders and investors “take a ‘haircut’” and are not being bailed out. The senator proposed $10 billion to $20 billion in initial capitalization. He also asked that a stimulus package include $10 billion for the purchase and rehabilitation of foreclosed properties by local governments through community development block grants (CDBG). He added that FHA modernization should be included in a stimulus package to provide distressed borrowers with new sources of mortgage capital thereby, he said, helping many save their homes. He said that raising Fannie Mae and Freddie Mac conforming loan limits temporarily would also start to bring liquidity back to mortgage lending and would help restore housing markets.