Despite Veto Threat, House Passes Mortgage Rescue Bill

GOP Calls Bill Bailout for Irresponsible Borrowers

The House today approved an ambitious plan to rescue hundreds of thousands of homeowners at risk of foreclosure by helping them trade exotic loans with rapidly rising monthly payments for more affordable mortgages backed by the federal government.

Despite a White House veto threat, 39 Republicans joined Democrats in supporting the proposal, the centerpiece of a broader housing bill that represents Washington's most aggressive response to the nation's housing crisis. The measure aims to unfreeze mortgage markets by expanding the reach of the Federal Housing Administration and strengthening mortgage giants Fannie Mae and Freddie Mac. It also would create a $7,500 tax credit for first-time homebuyers that aims to boost sales and slow plummeting home prices.

Republican House leaders blasted the bill as a bailout for speculators and irresponsible borrowers. But the measure gained strong support from rank and file Republican lawmakers. And even the White House left the door open to further negotiation.

"People are in a world of hurt. My sense is there's maneuvering room," said Rep. Fred Upton (R-Mich.). "There's still a chance they'll get a bill the president can sign, knowing that a lot of the country needs help."

President Bush vowed yesterday to veto the Democratic plan, charging that the measure would "reward speculators and lenders" while doing little to ease the nation's mortgage crisis.

The president's declaration surprised House Democrats. The chief author of the rescue plan, House Financial Services Committee Chairman Barney Frank (D-Mass.), has already made substantial changes to accommodate the administration's concerns.

Frank yesterday said a variety of administration officials and Federal Reserve Chairman Ben S. Bernanke have spoken favorably of the measure. Either "this is an internal debate going on" within the administration, Frank said, or the White House has decided "that the Republicans are in such bad shape that the only way to avert disaster in November is to tear down the Democrats, not let the Congress get credit for anything constructive."

Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) is working on a similar proposal with the senior Republican on his committee, Sen. Richard C. Shelby (R-Ala.), and plans to hold a drafting session Tuesday. Dodd said he was "terribly disappointed" by the veto threat.

At issue is a plan to help homeowners who are having trouble making mortgage payments but cannot sell or refinance because they owe their banks more than their homes are worth. As many as 10 million borrowers now have negative equity in their homes, and more could join them if home prices continue to fall. Such borrowers are at especially high risk of foreclosure, analysts said.

The Bush administration has taken steps to aid such borrowers, urging banks to forgive a portion of their loans and permitting the Federal Housing Administration to help them refinance into more affordable, government-backed loans. But those efforts have produced limited results.

Under Frank's proposal, the FHA would step more aggressively into the fray, offering to insure mortgages for even the least creditworthy borrowers if their banks will forgive a portion of the debt and help them stay in their homes. The bill could help as many as 500,000 homeowners, according to the Congressional Budget Office, enough to stabilize the housing market, Democrats hope.

The Bush administration has alternately criticized the plan and offered encouragement. Last week, for example, after Frank told reporters he had heard that the White House had issued a veto threat, Treasury officials quickly called to reassure him. That same day, Treasury Secretary Henry M. Paulson Jr. told the Reuters news agency that the administration is "behind the objectives" in Frank's bill, adding "we have not issued a veto threat."

That changed late Tuesday, when the White House issued a formal statement threatening to veto Frank's bill. The measure "would force FHA and taxpayers to take on excessive risk and jeopardize FHA's financial solvency," the statement said.

The statement said more than a third of borrowers assisted under the program would be likely to default on their loans, according to CBO estimates, forcing the FHA to pay off their mortgages and take possession of their homes. "The $1.7 billion price tag would be passed on to taxpayers who are not participating in this new FHA program," the statement said. "This attempt to shift costs to taxpayers constitutes a bailout."