Senate approves housing bill

WASHINGTON -- Even as a huge bipartisan majority in the Senate voted Saturday to send a sprawling housing bill to the White House, economists, consumer advocates and other analysts said the package of programs for cash-strapped homeowners and shaken mortgage lenders is unlikely to relieve the foreclosure crisis that is driving the nation toward recession.

"This is not the end of the housing crunch," said Jared Bernstein, a senior economist at the Economic Policy Institute. "Housing prices have already fallen 15 percent, and they need to fall 10 percent more. This bill isn't going to change that equation."

The Senate voted 72 to 13 to approve the bill, which seeks to halt the steepest slide in house prices in a generation, rescue hundreds of thousands of families from foreclosure and restore confidence in the nation's largest mortgage-finance firms. White House officials said President Bush is likely to sign it by midweek, despite his opposition to nearly $4 billion in local aid.

During Senate debate, Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee and one of the bill's lead sponsors, cited a litany of grim statistics about the mortgage crisis, including that an estimated 8,500 families a day are falling into foreclosure and that one in every eight homes is projected to enter foreclosure over the next five years.

"The American dream has become a nightmare for countless families," Dodd said, urging colleagues to vote for a bill that he acknowledged is "not perfect ... and will not perform miracles."

Republican lawmakers, particularly in the House, have blasted some of the measure's key provisions as bailouts for irresponsible borrowers and risk-addicted financial institutions that could wind up costing taxpayers hundreds of billions of dollars. The House passed the bill 272-152 Wednesday, with three-quarters of GOP lawmakers voting no.

Both presidential candidates, Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., expressed support for the legislation, though neither broke from the campaign trail to attend Saturday's vote.

"This is not the bill he would have drafted on his own. But it's time for action," said McCain economic adviser Douglas Holtz-Eakin.

Sen. Harry Reid, D-Nev., voted for the bill. He said Congress could have finished it before now except for "months of Republican stalling."

"We have passed the most sweeping housing legislation in decades," Reid said. Foreclosures are at the root of the nation's economic crisis, he said. "I urge the president to sign this bill as soon as possible."

Sen. John Ensign, R-Nev., was among the 13 senators who voted against the bill.

Ensign said homeowner tax credits and other incentives in the bill will be helpful to bring housing supply in balance with demand. But overall, he said, the bill will increase spending and government powers.

The bill "grows the size of the government by billions of dollars, bails out lenders with an unconditional check from the taxpayers and could make our situation worse in the long term," Ensign's office said in a statement.

Ensign opposed allowing the Federal Housing Administration to offer incentives for lenders to refinance troubled mortgages, spokesman Tory Mazzola said, calling it "a $300 billion FHA bailout program."

Additionally, the bill writes "an unconditional blank check from the Treasury" to bolster Fannie Mae and Freddie Mac, Mazzola said. It also raises the government's long-term debt by $800 billion.

"The costs and negatives of this bill outweighs the benefits it offers," Ensign said.

In the House, Reps. Shelley Berkley, D-Nev., Dean Heller, R-Nev., and Jon Porter, R-Nev., all voted in favor of the bill.

With elections looming in November, many lawmakers felt compelled to respond to a crisis that has pushed more than 1.5 million families into foreclosure. But the move is not without political risk.

A Los Angeles Times/Bloomberg poll conducted in late June found that 55 percent of those surveyed support aiding homeowners "who have been caught between rising mortgage payments and falling home values and are in danger of losing their homes." But more than a third were opposed, with one in five saying they strongly opposed the idea.

Still, analysts said lawmakers had little choice but to act.

"Everything is so unstable and people are so panicky that I see a lot of this as an effort to calm people down," said Deborah Lucas, a finance professor at Northwestern University's Kellogg School of Management. "The whole bill is an attempt to change the equilibrium."

The legislation was hammered out over the past two weeks in bipartisan negotiations between lawmakers and Treasury Secretary Henry Paulson. Paulson's request for authority to prop up faltering mortgage giants Fannie Mae and Freddie Mac lent a final burst of urgency to legislation that had been proposed in March and propelled by crisis, starting with the collapse of the Wall Street investment bank Bear Stearns.

The measure grants Paulson's request for authority to extend an unlimited line of credit to Fannie Mae and Freddie Mac, a move aimed at reassuring global markets that the firms, which back nearly half of all outstanding mortgages in the United States, will not be allowed to fail. The package also contains provisions long-sought by the Bush administration, including a strong new regulator for Fannie and Freddie and an overhaul of the FHA, the nation's largest provider of mortgage insurance.

After Saturday's vote, Sen. Jim DeMint, R-S.C., said the authority given the Treasury "crosses the line into socialism."

The centerpiece of the legislation is a plan to prevent as many as 400,000 foreclosures by authorizing the FHA to help families who, because of falling home prices, owe the banks more than their homes are worth. If lenders agree to forgive a portion of the debt and write new loans worth no more than 90 percent of the home's current, lower value, the FHA will insure the new loans and agree to pay off the lenders when borrowers default.

Homeowners also would get an immediate equity stake in their properties, which they would have to share with the government if they sell or refinance.

At a hearing Friday before the House Financial Services Committee, representatives of the mortgage industry promised Chairman Barney Frank, D-Mass., one of the bill's chief authors, that they would take advantage of the new program.

But consumer advocates have their doubts the legislation will help. More than a year after the mortgage crisis began, banks are still foreclosing on far more loans than they modify. In May, as a coalition of lenders known as the Hope Now Alliance modified 70,000 loans, RealtyTrac reported 261,000 foreclosure filings. An April report by the State Foreclosure Prevention Working Group found that 70 percent of seriously delinquent borrowers were not receiving help of any kind.

Stephens Washington Bureau Chief Steve Tetreault contributed to this report.