UPDATE 3-White House seeks movement on US housing bill

(Adds congressional aide comments, background, bylines)

By Kevin Drawbaugh and Tabassum Zakaria

WASHINGTON, July 21 (Reuters) - The White House on Monday said it hoped for progress on a sweeping housing rescue plan by the end of this week, but reiterated a veto threat over a provision that Congress looks likely to include in the bill.

Setting up a potential showdown with Congress, the White House said President George W. Bush would veto any bill that includes a provision to send $4 billion in federal grants to states and communities to buy and repair foreclosed homes.

Bush opposes that measure because it helps lenders rather than homeowners, White House spokeswoman Dana Perino said.

"He does not think that it's necessary," she said. "And so our position hasn't changed, but we've continued to work with them."

Treasury Secretary Henry Paulson, who has been meeting with lawmakers, believes Congress sees the urgency in passing legislation and has said he is quite confident of action this week.

As another big U.S. bank suffered mortgage loan losses, lawmakers from both parties were working to complete a 600-page bill meant to reduce foreclosures and restore confidence in mortgage giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz).

Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz), the largest U.S retail bank and mortgage lender, reported on Monday that second-quarter profits fell 41 percent from a year earlier, dragged down by a tripling in the bank's reserve for loan losses. For details, see [ID:nN21389811].