WASHINGTON —President Bush dropped his opposition today to a broad housing package aimed at bolstering the sagging economy, despite his objections to including $3.9 billion for neighborhoods hit hardest by foreclosures. The House was expected to vote on the bill today, and it could become law as early as this week.
Under the bill, the government would help struggling homeowners get new, cheaper loans and would be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion.
The Bush administration and lawmakers in both parties teamed to negotiate the measure, which pairs Democrats’ top priorities — federal help for homeowners facing foreclosure and $3.9 billion for devastated neighborhoods — with Republicans’ goal of reining in mortgage giants Fannie Mae and Freddie Mac while reassuring financial markets of their stability.
Bush had objected to the neighborhood grants, which would be for buying and fixing up foreclosed properties, saying that they were aimed at helping bankers and lenders, not homeowners who are in trouble.
White House press secretary Dana Perino announced Bush’s switch in a telephone conference call with reporters. “We believe this is not the time for a prolonged veto fight, but we are confident the president would prevail in one,” she said.
It was a dramatic split for Bush and congressional Republicans, many of whom are angrily opposed to the housing legislation, which they call a handout for irresponsible homeowners and unscrupulous lenders.
At a closed-door meeting today morning, House Republicans denounced the plan, although it’s clear they don’t have enough votes to prevent it from becoming law.
Rep. John Boehner, R-Ohio, the minority leader, told colleagues that he would “vote against this bailout bill, and that taxpayers deserve a lot better than this,” according to a senior GOP aide.
The measure hands the Treasury Department the power to extend the government-sponsored mortgage companies an unlimited line of credit and buy an unspecified amount of their stock, if necessary, to prop up Fannie Mae and Freddie Mac, two companies chartered by Congress. The two companies back or own $5 trillion in U.S. mortgages — nearly half the nation’s total.
“The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets,” Perino said. “While we have concerns with other aspects of the bill, it is important that the new authorities are put in place promptly. And so President Bush will accept Secretary (Henry) Paulson’s recommendation to sign the bill.”
With Congress just 10 days away from leaving Washington for a five-week summer break, she added, the possibility of waiting until mid-September for the housing measure “is not a risk worth taking in the current environment.”
At the Treasury Department, Paulson told reporters that he urged Bush to sign the bill despite its inclusion of the “wasteful” $3.9 billion in grants. He said its enactment would be “a very important message that we are sending to investors around the world” that would play a key role in “turning the corner” on the housing crisis.
Congressional analysts estimated Tuesday that mortgage giant the rescue could cost $25 billion, but predicted there’s a better than even chance it won’t be needed at all.
The bill would let hundreds of thousands of homeowners trapped in mortgages they can’t afford on homes that have plummeted in value escape foreclosure by refinancing into more affordable, fixed-rate loans backed by the Federal Housing Administration. Lenders would have to agree to take a substantial loss on the existing loans, and in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.
The plan also creates a new regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the FHA.
It includes about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time home buyers for people who bought homes between April 9, 2008, and July 1, 2009. It also allows people who don’t itemize their taxes to claim a $500-$1,000 deduction on their 2008 property taxes. That chiefly benefits homeowners who have paid off their homes and can’t claim a deduction for mortgage interest.
And it increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.
The White House, which initially denounced the FHA rescue as too burdensome on the government and risky for taxpayers, dropped most of its objections to the measure in recent weeks in search of a swift deal. The urgent request by Paulson to throw Fannie Mae and Freddie Mac a federal lifeline acted as a powerful locomotive for a deal.
The bill sets a cap of $625,000 on the loans that Fannie Mae and Freddie Mac may buy and the FHA may insure. It lets them buy and back mortgages up to 15 percent above the median home price in certain areas.
Lawmakers abandoned efforts to place conditions on any Fannie and Freddie rescue, but the bill hands the new regulator approval power over the pay packages of executives at the companies regardless of whether the government moves to financially reinforce them.
It also counts any federal infusion for the mortgage giants under the debt limit, essentially capping how much the government could spend to stabilize the companies without further approval from Congress. As of Tuesday, the national debt that counts toward the limit stood at about $9.5 trillion, roughly $360 billion below the statutory ceiling.
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