Democrats Propose a Depression-Era Aid Model.

Washington -- The idea of recreating a Depression-era agency to purchase defaulted mortgages and prevent widespread foreclosures is gaining traction in the House and Senate.

Senate Banking Committee chairman Chris Dodd, D-Conn., is working on legislation to create a Federal Homeownership Preservation Corp. that would purchase "distressed" mortgages from lenders and investors at a discount and provide a new 30-year fixed-rate mortgage to homeowners.

Those mortgages could be insured by the Federal Housing Administration or purchased by Fannie Mae or Freddie Mac.

His approach is modeled after the Home Owners' Loan Corp. that rescued one million homeowners from foreclosure during the Great Depression. "It would allow us to deal with this foreclosure matter in a creative way, one that has been tried before and I think worked well," Sen. Dodd said at press conference last week.

American Enterprise Institute resident fellow Alex Pollock recently authored a paper about the HOLC entitled "Crisis Intervention in Housing Finance."

Sen. Dodd credited the conservative think tank for promoting the concept.

House Financial Services Committee chairman Barney Frank, D-Mass., said he has talked with Sen. Dodd about a HOLC-type entity. However, Rep. Frank wants a program that can buy up foreclosed properties to help stabilize neighborhoods.