WASHINGTON (Reuters) - The U.S. House of Representatives opened debate on Wednesday on a bill to create a $300 billion fund to save homeowners from foreclosure, but President George W. Bush threatened to veto it.
The sweeping legislation, which Bush argues is too costly and could delay a housing recovery, would also provide $15 billion to buy abandoned properties and offer a $7,500 tax credit to first-time home buyers.
A vote on the measure, which looks certain to pass the Democratic-controlled House, is expected on Thursday.
Its sponsors expect many Republicans will break with Bush and back the election-year measure because of voter concerns over falling home prices and mounting foreclosures.
“We have seen the perfect storm of stagnant wages, rising mortgage payments and decreased home values, all of which have led to a record level of delinquencies and foreclosures,” Rep. Carolyn Maloney of New York said in arguing for the bill.
The main Democratic sponsor, House Financial Services Committee Chairman Barney Frank of Massachusetts, tied together new measures with legislation that had already passed the House which Bush supports.
Among the new provisions: a cash infusion and mandate for the Federal Housing Administration to guarantee up to $300 billion of loans on homes that lost 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 under the plan, which the non-partisan Congressional Budget office estimates would help no more than 500,000 borrowers.
Senate Democrats have vowed action on similar legislation.
The Bush administration argues that it can help many borrowers by tweaking the existing FHA program, without bailing out undeserving parties.
“We are committed to a good housing bill that will help folks stay in their house as opposed to a housing bill that will reward speculators and lenders,” Bush said after meeting with House Republicans.
While the legislation aims to free-up $300 billion for the FHA, the CBO said it expected the plan would backstop no more than $85 billion in loans, in part because many mortgage investors would likely turn their backs on a program that requires them to record big losses.
Nearly a third of the Republicans on Frank’s committee voted for his FHA plan last week. Still, in a heated debate on Wednesday, several Republicans said the bill would rescue borrowers who took on too much risk during the housing boom.
“We need to think long and hard about whether our actions are fair to the many millions of Americans who planned carefully and made sacrifices to meet their financial obligations,” Rep. Spencer Bachus, the top Republican on the Financial Services Committee said.
One measure that earned White House ire would deliver $15 billion of federal grants to cities and towns to buy foreclosed homes in disrepair. The White House said this would wrongly benefit the mortgage investors who now own those empty homes.
The legislation would also give a $7,500 tax credit to new, first-time home buyers and allow states to issue $10 billion in tax-exempt bonds to refinance shaky loans.
The administration said the aid for first-time buyers would burden the tax system and “likely subsidize taxpayers who would have purchased homes anyway.” However, it supports the tax-exempt state bond provision.
The bill includes two previously passed reform measures the White House has long sought. One would create new oversight for government-sponsored mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N. The other would modernize the Depression-era FHA, without a large expansion of its mission.
While Bush said he would veto the housing bill if it were to reach his desk, the administration has suggested it is open to compromise. “It’s possible to have a housing bill we can support,” said White House spokesman Tony Fratto.
Additional reporting by Kevin Drawbaugh, editing by Alan Elsner