WASHINGTON — The House approved a sweeping plan Wednesday that seeks to slow the steepest slide in house prices in a generation by providing aid to 400,000 strapped homeowners to avoid foreclosure and preventing troubled mortgage giants Fannie Mae and Freddie Mac from collapsing.
The 272-152 vote reflected a congressional push to send election-year help to struggling borrowers and to reassure jittery financial markets about the health of two pillars of the mortgage market.
Hours before the vote, President Bush dropped his opposition to the measure, which is now on track to pass the Senate and become law within days.
The White House swallowed its distaste for $3.9-billion in grants the bill would provide for neighborhood redevelopment. The grants are for buying and fixing up foreclosed properties. Florida, with its high mortgage default rate, could get more than $100-million of the money.
The Bush administration gains the power to throw a lifeline to Fannie Mae and Freddie Mac as part of the measure that also is designed to rein in the government-sponsored mortgage firms.
"This is the most important piece of housing legislation in a generation," said Sen. Christopher J. Dodd, D-Conn., chairman of the banking committee.
The administration and lawmakers in both parties teamed to negotiate the measure, which accomplishes several Democratic priorities, including federal help for homeowners and a new permanent affordable housing fund financed by Fannie and Freddie.
While the bill was widely praised by real estate industry groups, doubts remained about how much impact it will have for consumers faced with stagnant home sales and falling prices. Most analysts predict a housing recovery no sooner than 2009.
"This isn't going to be the catalyst for a better housing market," said Mark Zandi, chief economist at Moody's Economy.com. "It may stanch some of the downturn, but it's going to have a very modest positive impact."
It was a split for Bush and many congressional Republicans. GOP leaders denounced part of the legislation as a bailout for irresponsible homeowners and unscrupulous lenders. Still, 45 Republicans — most from districts ravaged by the housing crisis — voted "yes," reflecting the political potency of the package at a time when economic concerns are foremost in voters' minds.
The measure hands the Treasury Department power to extend the government-sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary, to prop up Fannie Mae and Freddie Mac, two companies chartered by Congress. The firms back or own $5-trillion in U.S. mortgages, 42 percent of the nation's total.
Congressional analysts estimate that a government rescue of the mortgage giants could cost $25-billion, but they predict there's a better than even chance it won't be needed.
The bill would let hundreds of thousands of homeowners trapped in mortgages they can't afford try to 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 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.
Of interest to areas with high housing costs, the bill would permanently raise the cap on mortgages that Fannie Mae and Freddie Mac can buy or guarantee to $625,500. It lets them buy and back mortgages of 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.
Times staff writer James Thorner contributed to this report.