WASHINGTON — The House Wednesday easily approved legislation that seeks to slow the steepest slide in house prices in a generation, rescue hundreds of thousands of homeowners at risk of foreclosure and reassure global markets that mortgage-finance giants Fannie Mae and Freddie Mac will not be allowed to fail.
The Senate plans to vote on the bill within days and send it to President Bush. The White House announced that Bush would sign the measure, Washington’s most ambitious response to a housing crisis that has pushed more than 1.5 million families into foreclosure and shattered investors’ confidence in some of the nation’s largest financial institutions.
The three House members from Nevada, where foreclosure rates are among the nation’s worst, voted for the mortgage rescue.
The bill "will slow the trend of foreclosures while preventing current home values from sinking any further," said Rep. Jon Porter, a Republican.
"This package will help more families stay in their homes," said Rep. Shelley Berkley, a Democrat. It "will provide them with new opportunities to refinance their loans."
"For every home that goes into foreclosure, entire neighborhoods experience declining property values," said Republican Rep. Dean Heller. "The housing crisis in this country is dragging down the economy and threatening working families. While this bill is far from a perfect legislative solution, it is still a positive step."
Although Bush continues to oppose a provision that offers $3.9 billion to communities devastated by foreclosures, he rescinded a veto threat after Treasury Secretary Henry Paulson persuaded him that the overall measure was urgently needed to stabilize the housing and credit markets, White House spokesman Dana Perino said.
"This is not the time for a prolonged veto fight, although we’re confident that the president would prevail in one," Perino said. "But with Congress scheduled to leave soon for yet another recess, the risk of not having a bill until the middle of September is not a risk worth taking in the current environment."
House leaders predicted that lenders would offer to forgive a portion of struggling homeowners’ debt and help them trade high-cost mortgages for more affordable government-backed loans within weeks.
"I would be very disappointed if, having helped us formulate this, they don’t take advantage of it," House Financial Services Committee Chairman Barney Frank, D-Mass., said of the banks.
In addition to mortgage bankers, interest groups as varied as home builders, real estate agents and civil rights groups back the legislation. The final package was assembled during intense bipartisan negotiations between House and Senate leaders and Paulson, who approached lawmakers two weeks ago seeking emergency authority to prop up Fannie Mae and Freddie Mac after a precipitous drop in the firms’ share prices.
The mortgage-finance firms, which are government-sponsored but investor-owned, together own or guarantee about half of the nation’s outstanding mortgages. Concern about their financial health has destabilized the markets and is driving interest rates for home loans toward their highest level in five years.
The need to calm investors added urgency to legislation that has been wending its way through Congress since April. The measure would grant Paulson immediate but temporary authority to extend an unlimited line of credit to Fannie Mae and Freddie Mac or to buy their stock if their financial condition deteriorates sharply before December 2009.
Democrats abandoned efforts to mandate specific protections for taxpayers, such as a requirement that the companies suspend dividend payments to shareholders as a precondition of receiving federal aid. Instead, the measure instructs Paulson to set the terms of any bailout.
"We said, ‘You have to protect the taxpayer, but how you do it is up to you,’ " said Frank, a key sponsor of the bill. "Going to the market is a tricky business. And I think tying his hands … is a mistake."
The Federal Reserve Board would have "consultative" authority over Fannie Mae and Freddie Mac until the legislation expires in December 2009. The legislation would create a strong new regulator for the firms, with explicit authority over compensation for chief executives, who take home millions of dollars a year.
Lawmakers rejected Paulson’s request to prevent any public aid to the firms from being counted as part of the federal deficit. Instead, the measure would raise the legal debt limit to $10.6 trillion, giving Paulson a cushion should aid to the firms become necessary. As of Wednesday, the national debt stood at $9.5 trillion.
Paulson has said he probably will not need the new authority because the firms are financially sound, and congressional budget analysts agree that it probably won’t be implemented, saying the cost to taxpayers should be less than $25 billion. Paulson praised lawmakers for acting quickly on a measure that would "give confidence to markets and will create a strong, independent regulator better able to address the risks these enterprises pose."
Stephens Washington Bureau Chief Steve Tetreault contributed to this report.