Rescue plan for housing is on the way

WASHINGTON — The House approved far-reaching government assistance Wednesday for the nation's housing market, including broad authority for the Treasury Department to protect the nation's two largest mortgage-finance companies from collapse. The measure includes an aggressive plan to help hundreds of thousands of troubled borrowers avoid foreclosure by refinancing their mortgages.

The White House, citing an urgent need to restore market confidence in the two mortgage giants, Fannie Mae and Freddie Mac, said President Bush would sign the measure despite his opposition to the inclusion of $4 billion in grants for local governments to buy and refurbish foreclosed properties.

The legislation, much of which has been debated and fretted over on Capitol Hill for months, leaves numerous questions unanswered. The biggest unknown is whether the measure will be adequate to slow the downward spiral of home prices and help the economy recover from what many analysts expect to be a prolonged slowdown.

Bush's support ensures that the bill will become law after final passage by the Senate, possibly Friday or Saturday. The House approved the bill by a vote of 272-152, with 45 Republicans joining 227 Democrats in favor of it.

The Washington delegation voted along party lines, with Democrats voting for the measure and Republicans voting against.

The weak support among House Republicans suggested an emerging split between Bush, who is nearing the end of his term, and lawmakers in the House, who are all running for re-election in November.

Republicans said they would not support a bill that puts taxpayer money at risk while potentially bailing out irresponsible borrowers and greedy lenders.

Lawmakers and experts described the legislation as a landmark shift in the government's role in the housing market, extending a generous helping hand to Wall Street and Main Street. They said it would rank in importance with the creation of the Home Owners' Loan Corp. as part of the New Deal to prevent foreclosures in the 1930s and the legislation in 1989 responding to the savings-and-loan crisis.

"We are at a time of considerable turmoil in the private financial markets, and that is a traditional time when government support is needed and called upon," said Alex Pollock, a fellow at the American Enterprise Institute.

Sen. Chris Dodd, D-Conn., chairman of the banking committee, said: "This is the most important piece of housing legislation in a generation."

Dodd appeared at a news conference with Sen. Richard Shelby of Alabama, the senior Republican on the committee. The two men said they expected the bill to pass the Senate with overwhelming support.

Rep. Barney Frank, D-Mass., a primary author of the legislation, said troubled homeowners might get relief within days of Bush signing the bill, because lenders have long known details of the legislation and could move quickly to help borrowers refinance. "Many of these institutions know this is coming," he said. "I hope they will be able to take advantage of it right away."

The legislation hardens the government's long-implicit assurance that it would step in to rescue the two mortgage giants who together own or guarantee about $5.2 trillion of the nation's $12 trillion in mortgages. Currently, Fannie Mae and Freddie Mac guarantee financing for about 80 percent of new mortgages.

To accommodate a potential rescue for Fannie Mae and Freddie Mac, the bill raises the national debt limit to $10.6 trillion, an increase of $800 billion.

The Treasury Department has said it hopes never to use the authority to spend unlimited taxpayer funds — perhaps hundreds of billions of dollars — to maintain the solvency of the mortgage giants because they are in sound financial condition. Still, shares in the two companies rose sharply Wednesday in a sign of the market's positive view of having a rescue plan in place.

The independent Congressional Budget Office said Tuesday that the rescue plan for the mortgage companies should appear on the federal budget as a $25 billion charge in fiscal 2009 and 2010, but officials conceded that this was only an estimate based on complicated calculations.

The budget office said the chances are better than even that a rescue would not be needed before the Treasury Department's authority to orchestrate a bailout ends, at the end of 2009, and in that case the cost to taxpayers would be nothing. But it also said that there is a 5 percent change that the mortgage giants could lose $100 billion or more, potentially costing taxpayers that much or more.

In addition to propping up Fannie Mae and Freddie Mac and helping homeowners avoid foreclosure, the bill creates a permanent affordable-housing trust fund that initially will help pay for the mortgage-refinancing plan and eventually sponsor the creation of rental housing for Americans too poor to buy homes.

The package also includes legislation to tighten the regulation of Fannie Mae and Freddie Mac by creating an independent agency to oversee them. The new regulator will have the authority to increase the capital requirements, the amount of money that companies must maintain to insulate against losses, and will have authority over executive pay at the two mortgage companies.

Some experts, including Thomas Stanton, an author and expert on the mortgage-financing industry, said the new regulator was not given enough authority, especially in light of the government's pledge to rescue the companies if needed. He said the bill provided looser regulation for the mortgage companies than currently applies to commercial banks, even though Fannie Mae and Freddie Mac, often referred to as government-sponsored entities, or GSEs, pose an outsize risk to the nation's financial system.

"If anything, GSEs are more vulnerable than commercial banks, because they are specialized in one kind of product," Stanton said.

Material from The Associated Press is included in this report.