House Passes $28-Billion Housing Plan : Legislation: Bush threatens a veto unless the final bill conforms to cheaper Senate version. Shoring up FHA insurance fund is a key issue.

The House overwhelmingly approved the first major renovation of federal housing policies in more than a decade Wednesday, but Republicans warned that President Bush will veto the $28-billion bill unless substantial changes are made.

Although a number of the GOP lawmakers said that their support was conditional on changes being made during negotiations with the Senate, the omnibus housing authorization bill swept through the House on a vote of 378 to 43.

It now must be reconciled with a Senate-passed $17.8-billion plan that the Administration supports. That process could be difficult because the differences between the bills are not only technical but philosophical, reflecting the two parties’ sharply contrasting views as to the direction that the nation’s housing policies should take.

Like the bill passed by the Senate on June 27, the House measure represents a major effort to redesign federal housing policies to make them more effective in meeting the needs of the homeless and of low-income renters who are being squeezed out by rising prices and a declining supply of affordable public housing.

The bill, sponsored by Rep. Henry B. Gonzalez (D-Tex.), chairman of the House Banking, Finance and Urban Affairs Committee, would increase funds for current housing programs and spur building of low-income rental units, and it contains several initiatives to help first-time buyers realize the increasingly elusive American dream of owning a home.

The House version differs from the Senate bill, which was the product of a compromise with the Administration, in the greater emphasis it places on money for new construction and rehabilitation of low-income rental units. Moreover, the two bills take very different approaches to plans for rescuing the Federal Housing Administration’s troubled mortgage insurance fund.

The House bill would be costlier than the Senate’s, authorizing 65% more money for fiscal 1991 than was appropriated for housing programs in this fiscal year.

But it was the sharply different approach to shoring up the FHA’s mortgage insurance program that provoked the most controversy about the House bill and kept it under the cloud of a White House veto.

With the savings and loan crisis haunting the election-year thoughts of legislators on both sides of the aisle, the financially troubled FHA fund emerged as the focal point of the housing debate after a study found that the fund could become insolvent. Defaults are expected to result in losses of $350 million a year.

The Senate, alarmed by warnings that another “baby S&L; crisis” was in the offing, included in its housing bill an Administration proposal to bolster the fund through more stringent financing requirements, including one that would require buyers to make larger down payments.

House Democrats rejected the Administration’s approach. They said it would shut out as many as 100,000 potential buyers who would not be able to come up with more than $1,400 in additional closing costs and insurance premium payments to buy their first FHA-insured homes.

“The proposal supported by the Administration would turn the FHA program on its head,” Rep. Bruce F. Vento (D-Minn.) said. “We are debating not only the future of the FHA program but of many young families who would like to purchase a home.”

The Democrats’ counterproposal, which, in the end, won broad bipartisan support, would hold payments to current levels but prohibit FHA insurance coverage of a loan exceeding the market value of the mortgaged property.

That provision was approved, 418 to 2, late Tuesday night, but, when the debate was resumed Wednesday, Republicans warned that Bush would still veto the bill unless the more stringent FHA proposals in the Senate version are adopted.

“This bill needs a stronger FHA provision,” said Rep. Chalmers P. Wylie (R-Ohio), the ranking Republican on the Banking Committee. Wylie said that he was voting for the bill because it was better than current law, but he warned that GOP leaders would work to sustain Bush’s veto unless it is modified in conference.