House passes housing bill

The House on Wednesday approved a broad housing rescue package, throwing a lifeline to strapped borrowers, foreclosure-ravaged communities and mortgage giants Fannie Mae and Freddie Mac.

The 272-152 vote in favor of the bill came after the White House abruptly withdrew its veto threat on the legislation earlier in the day.

{mosads}The package — the product of more than a year of deal-making between key House and Senate players and the Bush administration — looks likely to clear the upper chamber as early as Friday morning.

“The bill we have before us represents the most far-reaching reform of our nation’s housing finance system in a generation,” House Speaker Nancy Pelosi (D-Calif.) said shortly before the vote.

House Financial Services Committee Chairman Barney Frank (D-Mass.) finalized a deal on the bill late Tuesday, after close consultation with Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Treasury Secretary Henry Paulson.

In a press conference Wednesday, Dodd and Sen. Richard Shelby (Ala.), the top Republican on the Banking panel, signaled unequivocal support for the bill.

“We’ll be anxious to move this product along,” Dodd said.

The legislation is likely to gain broad support in the Senate, despite the opposition of a couple conservative senators who have vowed to slow the bill.

Sen. Lamar Alexander (Tenn.), the chairman of the Republican Conference, declared that “the case has been made” for the housing bill.

“I’m for the housing bill. I think we ought to move on with it and we should stay here until we get it done,” he said.

The Bush administration’s about-face on the bill — which it had vowed to veto several times over $4 billion in block grant funds for local governments — shows the pressure it is under to respond to the sagging economy.

It was also desperate for Congress to sanction its plan to shore up Fannie Mae and Freddie Mac, which saw their stock prices plunge this month amid fears about their solvency. The authority it had requested was included in the package.

At the heart of the legislation is a measure to allow for the refinancing of up to $300 billion in troubled mortgages into more stable 30-year loans backed by the government. The bill also contains a package of tax incentives to prop up the housing market and to spur the development of cheap rental housing.

And it would provide the block grants for states and towns to buy and rehabilitate foreclosed properties.

The legislation would institute a mandatory licensing system for all mortgage originators and set up a permanent fund for affordable-housing projects.

With the enactment of the bill the Bush administration would achieve two longstanding goals — strengthening the oversight of Fannie Mae and Freddie Mac and revamping the Federal Housing Administration.

Perhaps the most seminal portion of the legislation, however, is language that would make explicit what has long been assumed by financial markets: that the U.S. government would step in to ensure that Fannie Mae and Freddie Mac do not fail.

Earlier this month, the administration went hat-in-hand to Congress, asking for help to prop of Fannie and Freddie, private companies that are collectively known as the government-sponsored enterprises or GSEs because of their ties to the government.

Under the legislation, the Treasury Department will have authority for 18 months to extend an unlimited line of credit to the mortgage giants and to purchase equity in them.

The Federal Reserve will have the power, also for 18 months, to consult with the GSEs’ regulator on capital levels and other matters that could pose a risk to the financial system.

“Without this legislation — and without the Treasury being involved here — I don’t know that they would survive,” Shelby said.

In a Statement of Administration Policy it released Tuesday, the White House suggested that the urgent need to prop up Fannie and Freddie and give them a stronger regulator trumped its objections to other parts of the bill.

“While this bill should have been improved, the temporary Treasury authorities and GSE reform provisions are too important to the stability of our nation’s housing market, financial system, and the broader economy not to be enacted immediately,” the statement read.

The Congressional Budget Office (CBO) on Tuesday said the plan could cost the federal government up to $25 billion over two years. But it also said that there is a better-than-even chance that the federal government will not have to spend any money at all.

If the standby credit line gives the markets continued faith in the companies, it might never be tapped, the CBO’s thinking went.

Any use of the Treasury’s authority to extend credit to the companies or buy their stock would be subject to the public-debt limit, which the legislation would change from $10.6 trillion from $9.8 trillion.

The bill also gives the new GSE regulator say over the compensation of Fannie’s and Freddie’s top executives. And it would also give the Treasury some power over the companies’ financing decisions, should the federal aid be tapped.

These measures were imposed by Congress, and not requested by the administration, after several lawmakers, Republicans and Democrats, voiced unease about exposing taxpayers to potentially huge losses.

The mortgage companies provide the bulk of financing for home loans in the United States. The collapse of either firm would likely cause mortgage rates to spike and rock global financial markets.

Manu Raju contributed to this report.