House to Vote on Foreclosure Rescue Bill

The government would help struggling homeowners get new, cheaper loans and be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion as part of legislation that aims to calm the chaotic housing market.

Reed Saxon / AP A home is advertised for sale at a foreclosure auction in Pasadena, California.

The House was expected to vote on the bill Wednesday, and it could become law as early as this week.

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 Fannie Mae

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[FNM  Loading...      ()   ] and Freddie Mac

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[FRE  Loading...      ()   ] while reassuring financial markets of their stability.

It hands the Treasury Department 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 and Freddie. The two companies back or own $5 trillion in U.S. mortgages -- nearly half the nation's total.

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.

And it increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.

The White House, which initially denounced the FHA rescue as too burdensome on the government and risky for taxpayers, dropped most of its objections to the measure in recent weeks in search of a swift deal. The urgent request by Treasury Secretary Henry M. Paulson to throw Fannie Mae and Freddie Mac a federal lifeline acted as a powerful locomotive for a deal.

The bill sets a cap of $625,000 on the loans 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 prop them up.

It also counts any federal infusion for the mortgage giants under the debt limit, essentially capping how much the government could spend to prop up the companies without further approval from Congress. As of Tuesday, the national debt that counts toward the limit stood at about $9.5 trillion, roughly $360 billion below the statutory ceiling.