President Bush dropped his opposition Wednesday to legislation aiming to calm the chaotic housing market despite his objections to a $3.9 billion provision. The House is expected to vote on the bill Wednesday, 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 neighborhoods hit hardest by the housing crisis — with Republicans' goal of reining in mortgage giants Fannie Mae and Freddie Mac while reassuring financial markets of their stability.
Bush, along with Treasury Secretary Henry Paulson, initially opposed the $3.9 billion provision because he felt that the measure did more to help bankers and lenders than the individual homeowners and communities that are suffering most directly from the crisis. Paulson did note that the aspect of of the plan that shores up lenders will have beneficial effects. "This is a very important message that we are sending to investors around the world," Paulson said, adding that it would play a key role in "turning the corner" on the housing crisis.
The plan 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 stock prices of Fannie Mae and Freddie Mac rose sharply this morning following the announcement.
White House press secretary Dana Perino said she expected that the $3.9 billion provision would be included in the final legislation. "With Congress scheduled soon for yet another recess," she said, "the risk of not having a bill until at best the middle of September — if they even were act then — is not a risk worth taking in the current environment."
Congressional analysts estimated Tuesday that 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.
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.