WASHINGTON—The House Thursday approved a bill to create a $300 billion mortgage-insurance fund and provide billions more in homeowner aid to stabilize a housing market shaken by a wave of foreclosures and a credit crunch.
The bill would also offer a $7,500 tax credit for first-time home-buyers. A separate measure passed on Thursday would send $15 billion to local communities hit hard by the mortgage crisis to help them buy and fix abandoned homes.
The mortgage insurance fund, which would be overseen by the Federal Housing Administration, is expected to help 500,000 borrowers whose homes have dropped in value since they took out their mortgage. Under the program, lenders could get an FHA guarantee on the loan if they wrote down the principal amount.
The plan to retool the FHA was passed by a vote of 266 to 155 and notably drew the support of 39 Republican lawmakers. The measure to extend a tax credit to first-time home-buyers was passed by a margin of 322 to 94, also winning the support of many Republicans.
While President Bush has threatened to veto the sweeping bill drafted by Democrats, the White House has said it supports some provisions and has left the door open for a compromise.
"House Democrats passed bills that they know will never become law," said White House spokesman Tony Fratto. "Most Americans understand that we shouldn't create a taxpayer-funded bailout for lenders and speculators."
Fratto said Congress should send Bush legislation to modernize the Federal Housing Administration and reform oversight of government-chartered mortgage finance companies Fannie Mae and Freddie Mac.
"If any additional housing legislation is needed, it shouldn't include a bailout funded by taxpayers," he said.
The House bill now goes to the Senate, which has yet to fully debate and vote on key elements in the House plan.
The Senate Banking Committee on Tuesday is scheduled to begin drafting similar legislation to expand the FHA program. It is also due to take up a separate provision in the House bill that would create a new regulator for Fannie Mae and Freddie Mac.
Lenders would have to erase a portion of the original loan to secure a government guarantee on future payments under the plan to retool the FHA, which the non-partisan Congressional Budget Office estimates would help no more than 500,000 borrowers.
The Bush administration argues that it can help many borrowers by tweaking the existing FHA program, without bailing out parties it sees as undeserving.
During a debate Thursday, the key architect of the legislation said it would help correct excesses of an overheated housing market that for years saw Wall Street investors offer easy loan terms to risky borrowers.
"Clearly there has been market failure with regard to mortgages," Rep. Barney Frank, chairman of the House Financial Services Committee, said during a debate on the plan.
While the legislation aims to free up $300 billion for the FHA, the CBO said it expected the plan would backstop no more than $85 billion in loans, in part because many mortgage investors would likely turn their backs on a program that requires them to record big losses.
The plan to offer federal money to local governments hard hit by foreclosures was passed on a vote of 239 to 188 and could be more vulnerable to critics in the Senate and the White House.
A separate provision of the housing legislation would allow municipal bond issuers to use letters of credit from the Federal Home Loan Banks instead of bond insurance.
In recent months, major bond insurance companies have been downgraded by credit ratings agencies, wreaking havoc in the municipal bond market.
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