House passes major housing rescue bill

By Patrick Rucker

WASHINGTON (Reuters) - The U.S. House of Representatives on Thursday approved legislation to create a $300 billion mortgage-insurance fund and provide billions more in homeowner aid to stabilize a housing market shaken by a wave of foreclosures and a credit crunch.

The string of bills written by Democrats, the most aggressive government effort to date to combat the nation's housing woes, would give some first-time home buyers a $7,500 tax credit and send $15 billion to communities hit hard by the mortgage crisis to help them buy and fix abandoned homes.

The mortgage-insurance fund at the heart of the initiative would give the Federal Housing Administration fresh cash and a new mandate to refinance borrowers whose homes have dropped in value since they took out their mortgage.

Under the program, lenders would get an FHA guarantee on the loan if they wrote down the principal amount, an initiative that could help up to 500,000 borrowers.

The plan to retool the FHA passed 266 to 155 and notably drew the support of 39 Republicans, even though the measure faces a White House veto threat. The homebuyer tax credit measure was approved by a margin of 322 to 94.

CORRECTING EXCESSES

During a debate on Thursday, the key architect of the FHA plan said it would help correct excesses of an overheated housing market that for years saw Wall Street investors offer easy loan terms to risky borrowers.

"Clearly there has been market failure with regard to mortgages," said Rep. Barney Frank, chairman of the House Financial Services Committee.