Huge Housing Bill Set to Become Law
Bush Drops Veto Threat On Measure
Thursday, July 24, 2008
The House yesterday easily approved legislation that seeks to slow the steepest slide in house prices in a generation, rescue hundreds of thousands of homeowners at risk of foreclosure and reassure global markets that mortgage-finance giants Fannie Mae and Freddie Mac will not be allowed to fail.
The Senate plans to vote on the bill within days and send it to President Bush. The White House announced that Bush would sign the measure, Washington's most ambitious response to a housing crisis that has pushed more than 1.5 million families into foreclosure and shattered investors' confidence in some of the nation's largest financial institutions.
Although Bush continues to oppose a provision that offers $3.9 billion to communities devastated by foreclosures, he rescinded a veto threat after Treasury Secretary Henry M. Paulson Jr. persuaded him that the overall measure was urgently needed to stabilize the housing and credit markets, said White House press secretary Dana Perino.
"This is not the time for a prolonged veto fight, although we're confident that the president would prevail in one," Perino told reporters. "But with Congress scheduled to leave soon for yet another recess, the risk of not having a bill until the middle of September is not a risk worth taking in the current environment."
House leaders predicted that lenders would offer to forgive a portion of struggling homeowners' debt and help them trade high-cost mortgages for more affordable government-backed loans within weeks.
"I would be very disappointed if, having helped us formulate this, they don't take advantage of it," House Financial Services Committee Chairman Barney Frank (D-Mass.), said of the banks.
In addition to mortgage bankers, interest groups as varied as home builders, real estate agents and civil rights groups back the legislation. The final package was assembled during intense bipartisan negotiations between House and Senate leaders and Paulson, who approached lawmakers two weeks ago seeking emergency authority to prop up Fannie Mae and Freddie Mac after a precipitous drop in the firms' share prices.
The mortgage-finance firms, which are government-sponsored but investor-owned, together own or guarantee about half of the nation's outstanding mortgages. Concern about their financial health has destabilized the markets and is driving interest rates for home loans toward their highest level in five years.
The need to calm investors added urgency to legislation that has been wending its way through Congress since April. The measure would grant Paulson immediate but temporary authority to extend an unlimited line of credit to Fannie Mae and Freddie Mac or to buy their stock if their financial condition deteriorates sharply before December 2009.
Democrats abandoned efforts to mandate specific protections for taxpayers, such as a requirement that the companies suspend dividend payments to shareholders as a precondition of receiving federal aid. Instead, the measure instructs Paulson to set the terms of any bailout.
"We said, 'You have to protect the taxpayer, but how you do it is up to you,' " said Frank, a key sponsor of the bill. "Going to the market is a tricky business. And I think tying his hands . . . is a mistake."
The Federal Reserve Board would have "consultative" authority over Fannie Mae and Freddie Mac until the legislation expires in December 2009. The legislation also would create a strong new regulator for the firms, with explicit authority over compensation for their chief executives, who take home millions of dollars a year.