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09:29pm, 08/29/08

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Posted: Wednesday, 23 July 2008 5:40PM

House Passes Homeowner Rescue Bill

The House has passed legislation that aims to help 400,000 strapped homeowners who are facing foreclosure and prevent troubled mortgage giants Fannie Mae and Freddie Mac from collapsing.

The 272-152 vote on Wednesday reflected a congressional push to send election-year help to struggling borrowers and to reassure jittery financial markets about the health of two pillars of the mortgage market.

The measure is on track to pass the Senate and become law within days.

President George W. Bush dropped his opposition to the bill, despite his objections to including $3.9 billion for neighborhoods hit hardest by foreclosures.

Under the bill, the government would help struggling homeowners get new, cheaper loans and would be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion.

The Bush administration and lawmakers in both parties teamed to negotiate the measure, which pairs Democrats' top priorities - federal help for homeowners facing foreclosure and $3.9 billion for devastated neighborhoods - with Republicans' goal of reining in mortgage giants Fannie Mae and Freddie Mac while reassuring financial markets of their stability.

Mr. Bush had objected to the neighborhood grants, which would be for buying and fixing up foreclosed properties, saying that they were aimed at helping bankers and lenders, not homeowners who are in trouble.

White House press secretary Dana Perino announced Mr. Bush's switch in a telephone conference call with reporters. "We believe this is not the time for a prolonged veto fight, but we are confident the president would prevail in one," she said.

It was a dramatic split for Mr. Bush and congressional Republicans, many of whom are angrily opposed to the housing legislation, which they call a handout for irresponsible homeowners and unscrupulous lenders.

At a closed-door meeting Wednesday morning, House Republicans denounced the plan, although it is clear they do not have enough votes to prevent it from becoming law.

Rep. John Boehner, the Republican minority leader, told colleagues that he would "vote against this bailout bill, and that taxpayers deserve a lot better than this," according to a senior party aide.

The measure hands the Treasury Department the power to extend the government-sponsored mortgage companies an unlimited line of credit and buy an unspecified amount of their stock, if necessary, to prop up Fannie Mae and Freddie Mac, two companies chartered by Congress. The two companies back or own $5 trillion in U.S. mortgages - nearly half the country's total.

"The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets," Perino said. "While we have concerns with other aspects of the bill, it is important that the new authorities are put in place promptly. And so President Bush will accept Secretary (Henry) Paulson's recommendation to sign the bill."

With Congress just 10 days away from leaving Washington for a five-week vacation break, she added, the possibility of waiting until mid-September for the housing measure "is not a risk worth taking in the current environment."

At the Treasury Department, Paulson told reporters that he urged Bush to sign the bill despite its inclusion of the "wasteful" $3.9 billion in grants. He said its enactment would be "a very important message that we are sending to investors around the world" that would play a key role in "turning the corner" on the housing crisis.

Congressional analysts estimated Tuesday that mortgage giant the rescue could cost $25 billion, but predicted there's a better than even chance it won't be needed at all.

The bill would let hundreds of thousands of homeowners trapped in mortgages they cannot afford on homes that have plummeted in value escape foreclosure by refinancing into more affordable, fixed-rate loans backed by the Federal Housing Administration. Lenders would have to agree to take a substantial loss on the existing loans, and in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.

The plan also creates a new regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the FHA.

It includes about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time home buyers for people who bought homes between April 9, 2008, and July 1, 2009. It also allows people who don't itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes. That chiefly benefits homeowners who have paid off their homes and can't claim a deduction for mortgage interest.

And it increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.

The White House, which initially denounced the FHA rescue as too burdensome on the government and risky for taxpayers, dropped most of its objections to the measure in recent weeks in search of a swift deal. The urgent request by Paulson to throw Fannie Mae and Freddie Mac a federal lifeline acted as a powerful locomotive for a deal.

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