House OKs housing rescue despite veto threat

updated 7:02 p.m. ET May 8, 2008

WASHINGTON - The House on Thursday passed a massive homeowner rescue plan to provide cheaper, government-backed mortgages to half a million debt-ridden borrowers and bolster an economy crippled by the housing crisis.

Defying veto threats from President Bush, the House approved the measure by a vote of 266-154, with 39 Republicans — mostly from areas suffering worst from housing woes — supporting it.

It would let the Federal Housing Administration take on up to $300 billion in new mortgages so that financially strapped borrowers facing foreclosure could refinance.

The plan by Rep. Barney Frank, D-Mass., is the centerpiece of a broader package of bills approved Thursday that Democrats say will prevent more foreclosures and help homeowners and communities deal with the fallout from the mortgage meltdown.

“We are in a recession, and the major cause of that is the subprime crisis,” said Frank, the House Financial Services Committee chairman. “Diminishing the number of foreclosures is in the interest not simply of those who will avoid foreclosure, but people in their neighborhood, (in) the cities in which they are located, and the whole economy.”

The measure is targeted at homeowners facing default, including many who owe more than their houses are worth.

For instance, a homeowner who owes $290,000 on a house now worth $225,000 could refinance into an FHA-backed loan if the mortgage holder was willing to take a loss of about 36 percent. The borrower’s monthly mortgage payments would fall from $2,200 to about $1,200.

Loan holders would have an incentive to participate, proponents believe, since the alternative would be costly foreclosures, which can involve losses of 50 percent or more.

Supporters hope the package — which awaits action in the Senate — will serve as the basis for a broad bipartisan housing compromise that could satisfy both parties’ keen appetite for delivering election-year aid to anxious constituents.

But Bush’s veto warnings, bolstered by staunch GOP opposition, are clouding its prospects.

“House Democrats passed bills that they know will never become law. Most Americans understand that we shouldn’t create a taxpayer-funded bailout for lenders and speculators,” said Tony Fratto, a White House spokesman.

Republicans argued the package reward lenders and irresponsible borrowers at the expense of homeowners and renters who made more prudent choices and are straining to cover their costs in a punishing economic climate.

“The vast majority of Americans who find themselves struggling with mortgage payments, struggling with high gas prices, struggling with high food prices are now going to assume responsibility for ill-advised financial decisions and misjudgments of other people,” said Rep. Spencer Bachus, R-Ala.

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