Housing bill OK’d by Senate committee

WASHINGTON – A plan to rescue hundreds of thousands of homeowners at risk of foreclosure cleared a major political hurdle Tuesday, improving the chances of an election-year effort to address the nation’s housing crisis.

The Senate Banking Committee voted 19 to 2 to approve the bill, with every Republican except Sens. Jim Bunning, of Kentucky, and Mike Enzi, of Wyoming, voting with the Democratic majority.

The vote clears the way for Senate approval of the plan, which is likely to come soon after the Memorial Day break. It also raises hopes that President Bush will sign the measure. The White House threatened to veto a similar bill that passed the House this month, citing the potential cost to taxpayers. Tuesday, White House officials were more encouraging.

The legislation would authorize the Federal Housing Administration to help at-risk borrowers trade exotic mortgages with escalating monthly payments for more affordable loans backed by the federal government. It also would create a new, stricter regulator for mortgage giants Fannie Mae and Freddie Mac with broad power to control the companies’ finances. And it would dedicate a portion of their profits – about $500 million a year – to a new fund for low-income rental housing, the first significant federal commitment in decades.

Under a deal struck between Banking Committee Chairman Christopher Dodd, D-Conn., and Sen. Richard Shelby, R-Ala., the panel’s senior Republican, part of the low-income housing money would be diverted for three years to cover the cost of the FHA program. Senate Republicans had refused to support further government intervention in the housing market unless taxpayers were protected.

“This shows today what we can do if we work together,” Shelby told reporters. He expects the Senate to approve the measure with “a big, big vote,” adding: “I believe the White House will support this.”

White House spokeswoman Dana Perino called Shelby’s statement premature, but said the White House is “hopeful that we’ll be able to get to that point.”

Before the legislation reaches the president, the Senate will have to reconcile differences with the House-passed bill championed by Financial Services Committee Chairman Barney Frank, D-Mass. Frank said Tuesday that he is concerned about diverting the low-income housing money, which his bill would dedicate in the first year to New Orleans and other areas ravaged by Hurricane Katrina. Frank and Sen. Charles Schumer, D-N.Y., also plan to press for higher limits on conforming loans so that more borrowers in states like theirs with higher housing costs could qualify for lower interest rates. Still, Frank hailed the committee vote as a “big breakthrough” and said his staff will begin conferring with Senate aides.

“We can find ways to pay for this without taking the money away from New Orleans,” Frank said. “We are in agreement on a whole lot of things.” He said he hopes to be able to send the bill to Bush by early July.

Fannie and Freddie are not completely happy with the Senate version, but are not expected to mount a big lobbying effort to change it. Low-income housing advocates are disappointed by the diversion of funds but plan to support the bill.