WASHINGTON - The House approved a sweeping plan yesterday that responds to the most serious housing crisis since the Depression by providing a federal backstop for struggling mortgage giants Fannie Mae and Freddie Mac and aid to homeowners facing foreclosure.
In a sign of election-year anxiety over the economy, the White House, in a turnabout, 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.
"This is the most important piece of housing legislation in a generation," said Senate Banking Committee Chairman Christopher J. Dodd, a Connecticut Democrat. The Senate could approve the measure before the end of the week.
The measure includes a plan by Treasury Secretary Henry M. Paulson Jr. aimed at bolstering confidence in Fannie and Freddie by allowing the government to temporarily increase its lending to the government-chartered but privately owned companies and to buy stock in them, if necessary.
It also aims to stimulate the housing market and help keep 400,000 or more homeowners out of foreclosure. It includes about $15 billion in housing tax breaks, including a tax credit of up to $7,500 for first-time homebuyers.
Of interest to states with high housing costs, it would permanently raise to $625,500 the cap on mortgages that Fannie Mae and Freddie Mac can buy or guarantee.
"This bill offers hope that if we can get this industry up and moving again and provide security for distressed homeowners, maybe the economy will respond and get back on track as well," said Rep. Richard E. Neal, a Massachusetts Democrat.
The 272-152 House vote came a day after a report that a record number of Californians lost their homes to foreclosure during the past three months, adding urgency to congressional action.
The vote laid bare divisions within Republican ranks as party members came under pressure from the White House to support the bill but also expressed concern about its potential cost to taxpayers.
"Just because the housing market has tumbled doesn't mean we should capriciously finance a big, fat government bailout," said Rep. Sam Johnson of Texas.
House Minority Leader John A. Boehner, an Ohio Republican, expressed disappointment that the president would sign a "multibillion-dollar bailout for scam artists and speculative lenders at the expense of American taxpayers."
"I'm concerned that we are putting a massive burden on taxpayers for Wall Street's bad decisions and those of speculators who took on risky mortgages," said Rep. Kevin Brady, a Texas Republican.
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 a bailout could cost $25 billion.
A memo issued by the office of House Speaker Nancy Pelosi, a California Democrat, 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."
"I must commend the president - I've never thanked him for anything," said Rep. Maxine Waters, a California Democrat, praising Bush for withdrawing his veto threat.
The White House had objected to the $4 billion grant 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.
Bush dropped his opposition to the provision after concluding that the need for action is urgent.
The bill would create the Federal Housing Finance Agency to oversee Fannie Mae and Freddie Mac, and it will 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, received compensation last year valued at $12.2 million, including a $2.2 million bonus. Freddie Mac CEO Richard Syron received $10.5 million last year in salary, stock, options and bonuses.
The bill's passage comes as the economy has become a top political concern on Capitol Hill, with Democratic leaders considering preparing a second economic stimulus package amounting to $50 billion or more.
Even as the House considered the housing bill, Rep. David Dreier, a California Republican, introduced legislation that he said is aimed at giving the Federal Deposit Insurance Corp. more flexibility in its ability to help protect the deposits of banks facing financial crisis, a response to the collapse of Pasadena-based IndyMac Bank.
Among the Maryland delegation, Democratic Reps. Elijah E. Cummings, Donna Edwards, Steny H. Hoyer, C.A. Dutch Ruppersberger, John Sarbanes and Chris Van Hollen, and Republican Wayne T. Gilchrest, voted in favor of the legislation. Republican Roscoe G. Bartlett was the only Maryland representative to vote against it.
Cummings said that "government had to step in" to address the foreclosure crisis.
"Yeah, some people did make some bad decisions," he said. "There were some people in the housing industry who were not fair to these people who were trying to purchase a dream. But what is happening now, even if your house is not foreclosed on, you have a good chance of suffering. Because property values are going to go down. Tax revenues are going to go down. And you've got to have police officers and fire people constantly patrolling these neighborhoods that have a lot of houses that are vacant."
Sen. Richard C. Shelby of Alabama, the top Republican on the Senate Banking, Housing and Urban Affairs Committee, said Bush's turnabout reflected political reality.
"They looked at the Hill, they counted some votes and they see there's pretty broad support for this," said Shelby, his party's lead negotiator.
He and Dodd, the committee chairman, said they would push for swift approval of the measure without any changes.
Homeowners could benefit in several ways, said Anne Balcer Norton, an attorney and director of foreclosure prevention at the St. Ambrose Housing Aid Center in Baltimore.
Balcer Norton said the bill could enable homeowners facing foreclosure to voluntarily adjust the value of their homes in order to qualify for a more-affordable mortgage. However, the provision would require lender approval and participation, and not all lenders will be willing to take a financial hit.
She said the bill includes money that local governments could use to purchase houses left vacant because of the foreclosure crisis. She said the money could put families back into Baltimore neighborhoods that have been hit hard by foreclosures.
Still, Balcer Norton cautioned that the housing bill would not be a cure-all.
"There is no 'one size fits all' resolution," she said.
"In California, it is affordability. In Michigan, you have a devastated economy. Maryland has a relatively strong economy, but we do have scarce affordable housing. So, there is just no one way to resolve this crisis," she said. "We still have a long road to go."
Richard Simon writes for the Los Angeles Times. Sun reporters Matthew Hay Brown and Lynn Anderson contributed to this article.