House set to pass sweeping housing rescue bill
WASHINGTON (Reuters) - The U.S. House of Representatives opened debate on Wednesday on a bill that would create a $300 billion fund to save homeowners from foreclosure, but President George W. Bush threatened to veto the legislation which he said would "reward speculators and lenders."
Other measures would provide $15 billion to buy abandoned properties and offer a $7,500 tax credit to first-time home buyers in a sweeping bill that Bush has said was too costly and damaging to markets.
The plan looks certain to pass the Democrat-controlled House and the bill's sponsors expect many Republicans will defy the president and back their measure in the face of the current housing crisis.
Declining home values and rising foreclosures over the past 12 months have darkened the mood of U.S. consumers and pushed the economy toward recession. Recent reports show consumer confidence hit a five-year low in April, while home prices booked a record drop in February.
The Democratic plan combines a variety of new measures as well as some already-passed legislation in a bulky bill largely crafted by Rep. Barney Frank, chairman of the House Financial Services committee.
Significantly, nearly a third of Republicans on Frank's committee voted for his portions of the housing bill.
Late on Tuesday, the White House threatened to veto the housing plan and took particular aim at a provision that would deliver $15 billion of federal grants to cities and towns so that they could buy foreclosed homes that are in disrepair.
Such spending would wrongly benefit the mortgage investors who now own those empty homes, the White House said in a statement.
GOVERNMENT BACKSTOP
A key aspect of the legislation would provide a cash infusion and new mandate for the Federal Housing Administration to guarantee up to $300 billion of home loans for property that has sunk in value since the mortgage was written.
Lenders would have to erase a portion of the original loan to secure a government guarantee on future payments. An independent government study estimates that 500,000 borrowers could be helped under that program.
In a separate statement on Tuesday, Washington's leading housing agency faulted the Democrats' plan for putting too much federal money at risk and contended that it could help many homeowners by using administrative tweaks that do not require such legislation.
Another element of the plan would give a $7,500 tax credit to new, first-time homebuyers and allow states to issue $10 billion in tax-exempt bonds to refinance shaky loans.
In a statement, the Bush administration said the tax aid for first-time home buyers would burden the tax system and "would likely subsidize taxpayers who would have purchased homes anyway."
The White House has been supportive of expanding the tax-exempt bond issue.
The Democrat bill also includes two previously passed reform measures that the White House has wanted in order to discourage a veto. The measures would create new oversight for government-sponsored mortgage finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) as well as the Federal Housing Administration.
(Reporting by Patrick Rucker; editing by Tom Hals)
