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Homeowner Rescue Bill Passed Despite Veto Threat

WASHINGTON — Hoping to throw a rescue line to at least half a million families in danger of losing their homes, the House on Thursday approved legislation that seeks to broadly expand the availability of mortgages insured by the federal government.

The House vote, 266 to 154, defied a veto threat by President Bush and was cast mostly along party lines, with only 39 Republicans supporting the bill. Not a single Democrat voted against the measure, and the Republican votes in favor came predominantly from lawmakers in states at greatest risk of foreclosures.

Among the Republicans in favor were Nevada’s two Republican representatives, seven Republicans from Florida, five from Michigan, four from Pennsylvania, three from North Carolina and two each from Ohio and Illinois.

With the White House staunchly opposed to the plan, and Senate Republicans appearing increasingly reluctant to sign on, the bill’s leading champion, Representative Barney Frank of Massachusetts, conceded that its future was in doubt. “I don’t know what it means for the final situation,” Mr. Frank said after the vote. “I can’t predict it.”

What remains unclear is whether the Bush administration will negotiate with Congress on efforts to help homeowners refinance into more stable and affordable loans, or if, in an election year, it ultimately wants to deny Democrats any credit if the plan were to work.

Under the Democrats’ plan, lenders could limit their losses from potential foreclosures by agreeing to reduce the principal balances of loans at risk of default. The borrowers, many with expensive adjustable-rate loans, could then apply to refinance with a more stable, 30-year fixed-rate mortgage insured by the federal government.

In addition to paying interest and principal, the borrower would pay a monthly insurance fee, which would go into a fund to protect taxpayers from losses. The Congressional Budget Office has estimated that up to 500,000 refinancings would be generated over the next five years, at a cost to taxpayers around $2.7 billion.

To sweeten the package for the administration, Mr. Frank’s legislation included two measures that Mr. Bush has long demanded — a modernization of the Federal Housing Administration and tighter regulation of the government-sponsored lenders Fannie Mae and Freddie Mac.

Mr. Frank made several other changes while drafting the bill to address concerns raised by the White House, but Mr. Bush and aides have denounced the legislation as a bailout for irresponsible home buyers and greedy lenders.

After Thursday’s vote, the White House scolded Democrats for persisting with their effort.

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

Mr. Bush’s veto threat on Wednesday was interpreted by many lawmakers as a signal to Senate Republicans to kill the housing legislation.

Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking Committee, has been struggling to get Republican support for a similar bill.

Several Republican members of Mr. Dodd’s committee represent states where foreclosures are not a major problem, including the senior Republican, Senator Richard C. Shelby of Alabama. Even Senator Mel Martinez, a Florida Republican who is a member of the committee, has expressed reluctance in recent days to oppose the Bush administration, which says it can help more homeowners without new legislation.

In an announcement Thursday that coincided with the House vote, the Department of Housing and Urban Development announced new details of a plan to expand an existing program intended to help homeowners, called FHA Secure.

Since it was created in August, that program has helped about 2,000 homeowners who were in default because of increases in their adjustable interest rates.

Democrats call that a minuscule number, considering that by some estimates, as many as two million homes may be in danger of foreclosure this year.

Under the expanded program, beginning in July, the Federal Housing Administration for the first time would charge higher insurance premiums to borrowers viewed as presenting a higher credit risk. Currently, all borrowers pay the same premiums for mortgages insured by the federal government.

In addition to the mortgage refinancing plan, the House approved other measures as part of the housing package, including a number of tax provisions aimed at increasing the availability of affordable housing and a bill to provide $15 billion for states to buy and repair foreclosed properties. The package also provides authority for state and local housing agencies to use tax-exempt bonds to refinance bad mortgages.

In debating the main housing bill on the House floor Thursday, several Republicans complained that it would shift risk from private lenders to taxpayers, which would be unfair to the vast majority of American mortgage holders who pay their installments on time.

Representative Marsha Blackburn, Republican of Tennessee said the bill would “reward recklessness and provide a safety net for irresponsibility.”

Democrats said their plan included a number of safeguards, including a restriction that only borrowers seeking to refinance a loan on their primary residence could qualify.

Mr. Frank also said that homeowners seeking help amid the current economic downturn would not be encouraged to make further mistakes. “No borrower going through this program will come out and say, ‘Oh, that was fun — where do I buy a ticket to get back on Space Mountain?’ ” he remarked.

Representative Maxine Waters, Democrat of California and a sponsor of some of the housing legislation, said, “If we can help Wall Street, we certainly can help the people who vote for us every day.”