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House approves mortgage rescue
By Richard Simon
Los Angeles Times
Jul 24, 2008
WASHINGTON - The House approved a sweeping plan yesterday to ease the most serious housing crisis since the Great Depression by providing aid to homeowners facing foreclosure and a federal backstop for the 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 J. Dodd (D., Conn.).
The measure, which passed the House, 272-152, seeks to stave off foreclosure for 400,000 or more homeowners in part by letting them 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 aims to 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, to $625,500, the cap on mortgages that Fannie and Freddie can buy or guarantee.
"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 House vote came as the economy has become a top issue in the presidential campaign. 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 although the bill wasn't ideal, "the need for timely action is clear."
The vote laid bare divisions within the Republican ranks as its members came under pressure from the White House 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 Minority Leader John A. Boehner (R., Ohio) expressed disappointment that Bush would sign a "multibillion-dollar bailout for scam artists and speculative lenders at the expense of American taxpayers."
But Rep. Gary Miller (R., Calif.), who supported the bill, said it would counter perceptions that Freddie or Fannie were in trouble.
"I don't think they're ever going to need the help," he said, "but we're there if they do, and if they do, they've got to pay us back."
The Congressional Budget Office has said that Fannie and Freddie stand a "better than 50 percent chance" of weathering the housing crisis without a government rescue but that the bailout could cost $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 result. "Money for new mortgages would dry up," the memo said. "Home prices, already falling, would collapse. More homeowners would default."
The memo also said such a development could lead to new bank failures and a "deep recession."
The White House had objected to the $4 billion for communities to buy foreclosed property, calling it a bailout for lenders and speculators. 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 was urgent, White House officials said.
The bill would create 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's chief executive and president, Daniel Mudd, last year received total compensation valued at $12.2 million, including a $2.2 million bonus. Freddie CEO Richard Syron received $10.5 million last year, including salary, stock options and bonuses.
Key Elements of Housing Bill
The bill that Congress is preparing to send President Bush would:
Give the Federal Housing Administration $300 billion in new lending authority and relax standards to provide affordable, fixed-rate mortgages to debt-ridden homeowners. Any losses would be covered by an affordable-
housing fund financed by mortgage giants Fannie Mae and Freddie Mac.
Temporarily authorize the Treasury Department, until Dec. 31, 2009, to lend Fannie and Freddie money or buy their stock to avert a collapse of one or both.
Create a new regulator and tighten controls on Fannie and Freddie. Create a new affordable-housing fund drawn from their profits. Permanently raise the limit on the loans they may buy - set to revert to $417,000 by the end of the year - to $625,000 in the highest-cost areas.
Provide $3.9 billion in grants to the hardest-hit communities to buy and fix up foreclosed property.
Modernize the FHA and let it back loans for riskier borrowers. Permanently enlarge the loans it may insure - now set to revert to $362,790 by the end of the year - to $625,000 in the highest-cost areas.
Bar the FHA from insuring mortgages in which the borrower's down payment is paid by the seller, beginning Oct. 1, 2008. Bar it from charging premiums based on the homeowner's riskiness, until Oct. 1, 2009.
Provide $15 billion in housing tax breaks. Give a credit of up to $7,500 for first-time home buyers who buy between April 9, 2008, and July 1, 2009. Allow people who do not itemize to claim a $500 to $1,000 deduction on their 2008 property taxes.
Give states $11 billion more in tax-free municipal bond authority for low-
interest loans to first-time home buyers, construction of low-income rental housing, and refinancing of subprime mortgages.
Offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in default or about to default.
Provide $180 million for pre-foreclosure counseling and legal services for distressed borrowers.
SOURCE: Associated Press How They Voted
Representatives from the Philadelphia area who voted for the housing bill were Robert E. Andrews (D., N.J.), Robert A. Brady (D., Pa.), Michael N. Castle (R., Del.), Chaka Fattah (D., Pa.), Tim Holden (D., Pa.), Patrick Murphy (D., Pa.), Allyson Y. Schwartz (D., Pa.), Joe Sestak (D., Pa.) and Christopher H. Smith (R., N.J.).
Voting against the bill were Charles W. Dent (R., Pa.), Jim Gerlach (R., Pa.), Frank A. LoBiondo (R., N.J.), Joseph R. Pitts (R., Pa.) and H. James Saxton (R., N.J.).
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