Panel easily OKs housing bill

The Senate Banking Committee on Tuesday voted 19-2 to approve a housing rescue plan that would amount to the biggest congressional response yet to the mortgage crisis pummeling homeowners around the country.

Eight Republicans joined all of the panel’s Democrats to support the plan, which also includes long-sought legislation to tighten the reins on mortgage giants Fannie Mae and Freddie Mac.

{mosads}The lopsided vote lends momentum to the legislation as it heads to the Senate floor, and seems to bode well for its enactment, despite the administration’s recent threat to veto a similar House-passed plan.

“I believe the White House will support this. I don’t know why it wouldn’t,” said the panel’s top Republican, Sen. Richard Shelby (Ala.), who acknowledged that he had been talking with the administration on the deal he struck with Chairman Chris Dodd (D-Conn.).

GOP Sens. Mike Enzi (Wyo.) and Jim Bunning (Ky.) were the lone panel members to oppose the legislation.

The measure would allow the Federal Housing Administration (FHA) to insure up to $300 billion in troubled mortgages so that strapped borrowers could refinance into more affordable loans backed by the government.

The plan is temporary, but could help as many as 500,000 borrowers, the Congressional Budget Office (CBO) estimated.

Lenders would opt into the program — but only after agreeing to trim the size of borrowers’ mortgage debts.

“This bill addresses the root of our current economic problems — the foreclosure crisis — and takes a step in the right direction toward getting our economy back on track,” Dodd said.

Dodd, Shelby and House Financial Services panel Chairman Barney Frank (D-Mass.) all said that Congress could deliver the legislation to the White House before the July 4 recess.

Dodd and Shelby said they hope to bundle the legislation with other housing measures approved by the House or Senate into one conference report. Citing the strong committee vote, Dodd said, “We have the wind at our backs on this issue to package a bill.”

The bipartisan support for the rescue plan comes as lawmakers feel pressure to come to the aid of troubled homeowners.

Many Republicans, including Bush, have decried the plan as a bailout of reckless borrowers and speculators. But when the House approved a similar plan earlier this month, 39 Republicans bolted their leadership to vote for it.

Shelby, who sees himself as a protector of the taxpayer, agreed to support the legislation only after convincing Dodd to cover the plan’s cost with money from an affordable housing trust fund financed by profits from Fannie Mae and Freddie Mac, which are known as the government-sponsored enterprises (GSEs).

The trust fund was passed by the House as a top priority of Frank’s. Diverting its funding stream, even temporarily, will be a major point of contention in Senate-House negotiations.

However, the Shelby arrangement gives cover to many Republicans who are under pressure to aid homeowners but loathe to put taxpayers at risk.

Frank told reporters Tuesday that he was particularly reluctant to use the affordable housing funds to the homeowner rescue plan since a chunk of the money was meant to aid victims of Hurricane Katrina in the first year.

But he voiced optimism that a deal could be worked out in conference. “I feel strongly about the affordable housing trust fund — there are a couple of other things I will have to look at — but there’s a great deal of agreement on this,” he said.

Creating a stronger overseer for Fannie and Freddie is a longstanding goal of the administration, and Frank seized on the strategy of linking such legislation with the homeowner rescue plan as a way to melt the White House’s opposition.

Under the Senate legislation, Fannie and Freddie will get a new regulator with powers to raise capital and limit their portfolios. The two mortgage giants have a combined $5 trillion in debts and other obligations that have raised concerns that taxpayers would be called upon to bail them out.

Dodd said that Fannie and Freddie “weren’t overly enthusiastic about some parts” of the bill.

But the new regulator is likely to prove a carrot to the administration.

On Monday, Bush had softened his remarks from statements he made on the House bill, telling reporters, “These major players in the mortgage market, if reformed properly by Congress, will really help stabilize the markets and make it easier for people to stay in their homes.”

The CBO said it would require a credit subsidy of $1.7 billion over five years to cover any losses on the mortgages. Only a portion of the $300 billion in mortgages that would be insured by the government is likely to default.

The bill would also raise the cap on the size of mortgages Fannie and Freddie can buy, from $417,000 to about $550,000. That limit was raised temporarily to nearly $730,000 in the most costly housing markets under the economic stimulus plan that passed into law in February.

Frank said that the Senate’s loan limit would be a point of contention with the House, which approved a cap of $625,500 in high-cost areas. He predicted House Speaker Nancy Pelosi (D) and other members from California, where median home prices are among the highest in the country, would fight for the higher limit.