WASHINGTON (Reuters) - The House of Representatives passed a massive housing rescue bill on Wednesday while the White House dropped a threat to veto it, paving the way for measures aimed at shoring up the worst U.S. housing market since the Great Depression.
Removal of the presidential veto threat spurred investors to snap up shares and bonds of mortgage finance companies Fannie Mae and Freddie Mac, which would receive an emergency government lifeline under the bill.
The measure, approved on a 272-152 vote, now moves to the U.S. Senate, where a vote may take place later this week or early next week.
The bill had been in the works for months, but took on greater urgency since concerns about Fannie and Freddie’s finances mounted in mid-June
Ten days ago, the U.S. Treasury pledged an unspecified credit line for the companies and said it would buy their stock, if needed, to bolster investor confidence. Those emergency measures required congressional approval.
The two companies, which own or guarantee almost half of the $12 trillion in U.S. mortgage debt outstanding, have recorded heavy losses in the past year amid rising defaults.
If they were unable to keep financing mortgages, analysts say the already weak housing market could grind to a halt, tipping the U.S. economy into a deep recession.
NO TIME TO WAIT
A White House spokeswoman earlier said President George W. Bush would sign the bill because it is needed urgently to address the housing and credit crisis, despite concerns about a provision that would provide grants to communities to buy and repair foreclosed homes.
“We do not believe we have time for a prolonged veto fight,” spokeswoman Dana Perino said.
Lawmakers have moved with unusual speed since the Treasury proposed the financial backstop for the two companies.
Senate Majority Leader Harry Reid said he wanted to send the measure to the president on Wednesday, but cautioned Republican lawmakers could stall it, making it unclear whether Senate approval would come this week.
Treasury Secretary Henry Paulson said he recommended that Bush drop his objections because reforms for Fannie Mae and Freddie Mac, the country’s two biggest mortgage finance companies, were too important.
“What we’re doing with the (companies) is orders of magnitude more important than any of the other parts of this housing legislation,” Paulson told reporters.
On the New York Stock Exchange, shares of Fannie Mae climbed nearly 12 percent to close at $15.00, while Freddie Mac tacked on more than 11 percent to $10.80. Both listings have more than doubled since their July 11 lows, though they are still down sharply compared with a year ago.
In a further sign market concerns about the companies are relaxing, risk premiums on debt issued by the two companies narrowed. Priya Misra, an interest rate strategist at investment bank Lehman Brothers, said the legislation “makes it easier for them to raise capital.”
Fannie Mae on Wednesday sold $3 billion in short-term debt at higher interest rates than a week earlier. The rates, however, rose less than a benchmark investors use to judge value, showing decent demand for the deal.
Congressional budget analysts put a $25 billion potential price tag on the provision to bolster Fannie and Freddie, but pointed to a wide range of possible costs.
Both Paulson and the companies have said the credit line was just a backstop and they had no intention of using it.
In addition to that backstop, the bill would set up a new regulator for the companies and raise the size of mortgage loans that they and the Federal Housing Administration can guarantee. It would permit the FHA to refinance up to $300 billion in mortgages facing foreclosure.
The new regulator for Fannie Mae and Freddie Mac, the result of years of debate over reining in the powerful government-sponsored enterprises, would have broadened authority to set capital requirements. The Federal Reserve would have a “consultative role” in setting those requirements and ensuring the soundness of the mortgage enterprises.
The bill also contains an increase in the Treasury’s borrowing authority. This hike was sketched out in a fiscal 2009 budget blueprint that cleared Congress earlier this year.
The current debt limit is set at $9.815 trillion. Under the bill, it would be increased to $10.615 trillion to accommodate the federal government’s continued deficit spending.
Currently, the public debt is around $9.5 trillion.
Additional reporting by David Lawder, Richard Cowan and Kevin Drawbaugh, writing by Emily Kaiser and Mark Felsenthal; Editing by Neil Stempleman, Gary Crosse
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