WASHINGTON – The House approved a sweeping plan Wednesday to ease the most serious housing crisis since the Great Depression by providing aid to homeowners facing foreclosure and a federal backstop for struggling mortgage giants Fannie Mae and Freddie Mac.
In a sign of election-year anxiety over the economy, the White House dropped its veto threat and signaled that President Bush would sign the measure, even though it includes a provision he opposed to provide $4 billion for communities to buy and fix up abandoned properties.
Senate approval could come by the end of the week.
“This is the most important piece of housing legislation in a generation,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn.
The measure seeks to stave off foreclosure for 400,000 or more homeowners in part by allowing them to refinance into lower-cost government-insured mortgages, provided that lenders agree to take a loss.
It also includes a plan by Treasury Secretary Henry Paulson to bolster confidence in Fannie and Freddie by allowing the government to temporarily increase its lending to the government-chartered companies and to buy stock in them, if necessary.
Another provision would stimulate the housing market with about $15 billion in tax breaks, including a tax credit of up to $7,500 for first-time home buyers.
Of interest to areas with high housing costs, it would permanently raise the cap on mortgages that Fannie Mae and Freddie Mac can buy or guarantee to $625,500.
“This will begin to lay the groundwork for a turnaround in the housing market and hopefully in the broader economy as well,” said House Financial Services Committee Chairman Barney Frank, D-Mass., a chief architect of the bill.
The 272-152 House vote came a day after a report that a record number of Californians lost their homes to foreclosure in the past three months, adding urgency to congressional action.
It also came as the economy has become a top presidential campaign issue. Democrat Barack Obama and Republican John McCain each expressed support for the bill.
Obama said the bill should be followed by approval of a second economic stimulus measure of “at least $50 billion.”
McCain economic adviser Douglas Holtz-Eakin said that while the bill isn’t ideal, “the need for timely action is clear.”
The vote laid bare divisions within Republican ranks as its members came under pressure from the White House and business groups to support the measure but also expressed concern about its potential cost to taxpayers.
Among House Republicans, 45 voted for the bill and 149 voted against it. All but three Democrats voted in favor.
“Just because the housing market has tumbled doesn’t mean we should capriciously finance a big, fat government bailout,” said Rep. Sam Johnson, R-Texas.
House Republican leader John Boehner of Ohio expressed disappointment that the president would sign a “multibillion-dollar bailout for scam artists and speculative lenders.”
But Rep. Gary Miller, R-Calif., who supported the bill, said it would counter perceptions that Freddie or Fannie are in trouble.
“We needed to eliminate any perception of risk associated with those entities,” he said. “I don’t think they’re ever going to need the help, but we’re there if they do, and if they do, they’ve got to pay us back.”
“The cost of inaction is far too great,” added Rep. Mary Bono Mack, R-Calif., who also voted for the measure.
The Congressional Budget Office has said that Fannie and Freddie stand a “better than 50 percent chance” of weathering the housing crisis without resorting to the government rescue plan, but that a potential bailout could cost taxpayers $25 billion.
A memo issued by the office of House Speaker Nancy Pelosi, D-Calif., warned that if Fannie and Freddie failed, dire consequences would follow.
“Money for new mortgages would dry up,” the memo said. “Home prices, already falling, would collapse. More homeowners would default.”
The memo also said it could lead to new bank failures and a “deep recession.”
“I must commend the president – I’ve never thanked him for anything,” said Rep. Maxine Waters, D-Calif., praising Bush for withdrawing his veto threat.
The White House had objected to the $4 billion for communities to buy foreclosed property, calling it a bailout for lenders and speculators.
But the provision’s supporters said it would prevent neighborhood blight that can drive down housing prices and reduce tax revenue.
Bush dropped his opposition to that provision after concluding that the need for action is urgent, White House officials said.
The bill would create the Federal Housing Finance Agency to oversee Fannie and Freddie and will have the power to limit the compensation of the companies’ executives, a source of congressional anger.