White House vows housing bill veto as Senate debates

WASHINGTON (Reuters) - The Republican and Democratic leaders of the U.S. Senate Banking Committee said on Thursday they were disappointed with a White House threat to veto a multi-billion-dollar housing market rescue bill.

Both Connecticut Democrat Christopher Dodd and Alabama Republican Richard Shelby support the bill, which the Senate began debating on Thursday morning. Shortly after debate began, the Bush administration issued a veto threat.

"This is a disappointing response ... We hope the White House will reconsider its position," Dodd and Shelby said in an unusual joint statement.

Dodd chairs the banking committee, while Shelby is the top Republican on it and won concessions from Democrats in helping to draft the bill. Despite the veto threat, aides from both political parties said the White House has given mixed messages on its position on the housing bill.

With home prices falling and foreclosures on the rise, Democrats in Congress are pushing for aggressive federal action, with the support of key Republicans. But a few Republicans are raising objections and seeking delay.

Congressional leaders are trying to hammer out a final bill and send it to President George W. Bush before lawmakers leave town at the end of next week for the July 4 holiday.

At its heart, the Senate legislation would create a $300 billion mortgage rescue fund that proponents say would let the government backstop 400,000 failing home loans.

In a statement, the White House strongly objected to provisions of the bill that would send $4 billion in aid to communities hard-hit by foreclosures, faulted other spending plans and changes in how regulators oversee housing programs.

"The federal government must not prolong necessary corrections in the housing market, bail out lenders, or subsidize irresponsible borrowing and lending," the White House said in a statement.

Tough talk from the White House has not dissuaded lawmakers from challenging Bush in the past. In April, senators voted 84 to 12 in favor of a costly housing aid bill that Bush opposed.

"We believe this legislation represents a compromise that will bring relief to hundreds of thousands of homeowners," Dodd and Shelby said. "All the pieces of this package have overwhelming bipartisan support."

BLOCKING MOTION FAILS

Late in the Senate's Thursday session, a motion by two Republican senators -- South Carolina's Jim DeMint and Kentucky's Jim Bunning -- to block the housing bill by sending it back to committee, failed.

The bill, headed for a floor vote within days, closely resembles one already passed by the House of Representatives that also has drawn a Bush administration veto threat.

Both bills would create a $300 billion mortgage insurance fund under the Federal Housing Administration to help homeowners struggling with mortgages to refinance, if lenders agree to erase part of the original loans.

Paying for the fund is a point of contention between Democrats and Republicans, as is another provision in both bills that would channel federal grants and loans to state and local governments to buy and fix up foreclosed properties.

Both bills also would retool the regulator that oversees Fannie Mae and Freddie Mac, the congressionally chartered companies that are the nation's largest sources of mortgage finance, as well as raising the limit on the size of mortgages that may be financed by the two and the FHA.

Differences between the House and Senate bills would have to be worked out before a package could go to the White House.

(Additional reporting by Patrick Rucker, Karey Wutkowski and Thomas Ferraro; editing by Carol Bishopric)