The House approved a sweeping plan Wednesday to ease the country’s 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 bill, despite his opposition to a provision to provide $4 billion to communities to buy and fix up vacant 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 lenders agree to take a loss.
It also includes a plan by Treasury Secretary Henry M. Paulson to bolster confidence in Fannie and Freddie by allowing the government to temporarily increase its lending to the federally chartered companies and to buy their stock, if necessary.
Another provision seeks to stimulate the housing market with about $15 billion in tax breaks, including a tax credit of as much as $7,500 for first-time home-buyers.
Of interest to California and other 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 in foreclosures in the last three months.
The economy has become a top presidential campaign issue. Democrat Barack Obama and Republican John McCain each expressed support for the housing bill.
Obama said the bill should be followed by approval of a second economic stimulus measure of “at least $50 billion.” McCain economic advisor Douglas Holtz-Eakin said the housing bill wasn’t ideal, but “the need for timely action is clear.”
The vote laid bare divisions among Republicans as members came under pressure from the White House and business groups to support the measure and set aside their concern about its potential cost to taxpayers.
Among House Republicans, 45 voted for the bill and 149 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-Diamond Bar), who supported the bill, said it would counter perceptions that Freddie or Fannie is 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,” said Rep. Mary Bono Mack (R-Palm Springs), who also voted for the measure.
The other California Republicans who voted for the measure are Ken Calvert of Corona, John Campbell of Newport Beach, David Dreier of San Dimas, Elton Gallegly of Simi Valley, Duncan Hunter of Alpine, Jerry Lewis of Redlands, Dan Lungren of Gold River, and Howard P. “Buck” McKeon of Santa Clarita.
All of the California Democrats supported it.
The Congressional Budget Office has said that Fannie and Freddie stand a “significant chance — probably better than 50%” of weathering the housing crisis without resorting to the government rescue plan, but that if there is a bailout, it could cost taxpayers $25 billion.
A memo issued by the office of House Speaker Nancy Pelosi (D-San Francisco) warned of dire consequences if Fannie and Freddie failed.
“Money for new mortgages would dry up,” the memo said. “Home prices, already falling, would collapse. More homeowners would default.” It also could lead to new bank failures and a “deep recession,” the memo said.
“I must commend the president -- I’ve never thanked him for anything,” said Rep. Maxine Waters (D-Los Angeles), praising Bush for withdrawing his veto threat.
The White House had objected to the $4 billion slated 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.
However, Bush dropped his opposition to that provision after concluding that the need for action is urgent, White House officials said.
The bill would create a new regulator, the Federal Housing Finance Agency, to oversee Fannie and Freddie. It would have the power to limit the compensation of the companies’ executives, a source of congressional anger.
Fannie Mae’s chief executive and president, Daniel Mudd, last year received compensation valued at $12.2 million, including a $2.2-million bonus. Freddie Mac Chief Executive Richard Syron received $10.5 million last year, including salary, stock, options and bonuses. The companies, though federally chartered, are private entities.
Industry executives applauded the House action, but cautioned that it wouldn’t solve all problems.
Kieran P. Quinn, chairman of the Mortgage Bankers Assn., said the measure would “help stabilize the mortgage market, stop the downward spiral of home prices in parts of this country and provide additional tools for lenders to work with borrowers to avoid foreclosure whenever possible.”
Mick Pattison, chief executive of Barratt American, a home builder based in Carlsbad, said “anything to stop foreclosures” would be a welcome move, but the relief would be late arriving to a market that has struggled for months.
“Quite honestly, it should have been done a year ago,” he said.
Pattison emphasized that the near-term outlook remained grim. “Nobody has confidence when gas is $5 a gallon and the value of your house is going down every month.”
Times staff writer Peter Y. Hong in Los Angeles contributed to this report.
(BEGIN TEXT OF INFOBOX)
Key numbers in the congressional housing bill:
Block grants for communities to buy foreclosed properties.
The raised cap on mortgages eligible for backing by Fannie Mae and Freddie Mac.
Tax benefits to stimulate the housing market.
Source: Los Angeles Times
(BEGIN TEXT OF INFOBOX)
Key parts of the housing bill:
Loans: Allow homeowners to refinance into government- backed mortgages that cost less.
New agency: Create a new federal agency to oversee mortgage giants Fannie Mae and Freddie Mac.
Lending: Allow an increase in government lending to Fannie Mae and Freddie Mac for 18 months.
Grants: Provide $4 billion in block grants for communities to buy foreclosed properties.
Mortgages: Permanently raise the cap on mortgages eligible for backing by Fannie and Freddie to $625,500.
Growth: Stimulate the housing market through $15 billion in tax benefits, including a tax credit of as much as $7,500 for first-time home-buyers.