The legislation, approved 63-5 today, would let an estimated 400,000 struggling homeowners avoid foreclosure by refinancing their subprime mortgages into fixed-rate loans backed by the government. The measure also offers tax incentives to potential homebuyers and sets aside $4 billion to help communities buy foreclosed properties.
The measure was crafted before concerns emerged that Fannie Mae and Freddie Mac, the biggest buyers of home mortgages, may need a federal bailout after their shares plunged more than 45 percent this week. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said today he saw no reason for revisions because the lenders are ``fundamentally sound.''
``This is not a time to be panicking,'' Dodd said. ``This is a solid bill'' that ``should offer some confidence to those who invest in these government-sponsored enterprises that these are worthwhile investments.''
The Bush administration signaled it is willing to work out a compromise with lawmakers after initially threatening to veto the legislation. The White House objects to setting aside cash for communities to buy foreclosed properties, saying such a step would benefit lenders who own the vacated properties rather than individuals struggling to remain in their homes.
``Congress should work to get this legislation to the president's desk in a way that he can sign it,'' White House Spokesman Dana Perino said today. ``That provision we object to should be stripped out so that they can get a housing bill to the president that he could sign right away.''
Dodd said he hoped to get a bill to Bush by next week. Lawmakers must first work out their differences with the House, which approved a bill in May. House Democrats object to some of the tax and spending provisions backed by the Senate and also want higher ``conforming'' loan limits for Fannie Mae and Freddie Mac. Dodd said he expects House Democrats to delete the $4 billion in state aid opposed by the administration.
``There are some things I would like to see in the bill that the Senate didn't include,'' House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said yesterday. ``Given the urgency of this, we're not going to hold up progress because of good things they didn't do. We will try to change things that they did do that we think could cause problems.''
The Senate voted amid fresh signs of weakness in the housing industry. Shares of Fannie Mae and Freddie Mac tumbled for a third day as Treasury Secretary Henry Paulson sought to allay concerns the government might take over the companies, which could potentially wipe out their shareholders.
Foreclosure filings rose 53 percent in June from a year earlier, and bank repossessions increased the most on record as deteriorating property values and higher rates on adjustable mortgages forced more people to give up their homes. More than 252,000 properties, or one in 501 U.S. households, entered the foreclosure process, according to RealtyTrac Inc., a seller of default data.
The bill had stalled in the Senate as some lawmakers sought last-minute concessions. Senator Jim DeMint, a South Carolina Republican, demanded changes in an unrelated bill before allowing it to proceed while Senator John Ensign, a Nevada Republican, wanted a chance to attach provisions extending tax breaks for the energy industry.
Before that, Dodd and North Dakota Democratic Senator Kent Conrad were forced to answer questions about why they received preferential treatment on personal mortgages from Countrywide Financial Group. Both denied any wrongdoing.
The loan-guarantee initiative would allow homeowners struggling with exotic mortgages to refinance into 30-year, fixed-rate loans if their lenders agree to reduce the amount owed. The nonpartisan Congressional Budget Office estimated that about 2.2 million borrowers holding subprime or ``Alt-A'' loans will face foreclosure proceedings between Oct. 1, 2008, and September 30, 2011. Of them, CBO said, 400,000 will probably take advantage of the new loan program to refinance $68 billion worth of mortgages.
The bill would allow Fannie Mae and Freddie Mac to finance more mortgages in high-cost areas by raising their ``conforming'' loan limits to as high as $625,000. The plan would create a new entity called the Federal Housing Finance Agency charged with overseeing Fannie Mae, Freddie Mac and the dozen federal home loan banks around the country.
Senator Richard Shelby, the top Republican on the Banking Committee, said the plan ought to calm jittery investors concerned that Fannie Mae and Freddie Mac may not weather the mortgage crisis. ``The way to keep them from getting in worse financial shape is to create a strong regulator that will monitor them closer than they have been,'' Shelby said.
The Senate plan includes more than $14 billion of tax breaks, including ones temporarily allowing almost 30 million homeowners who don't itemize their tax returns to claim a property-tax deduction. First-time homeowners could receive the equivalent of an interest-free loan worth up to $8,000 under the bill. States would be allowed to issue an additional $11 billion of tax-exempt bonds to raise the money needed to prop up their local housing markets.
The plan would also provide an additional $150 million for mortgage-counseling programs, create a new affordable housing program financed by Fannie Mae and Freddie Mac and require lenders to provide borrowers with more details regarding the size of their mortgage payments. The Congressional Budget Office estimates the plan would cost taxpayers about $1.7 billion over the next 10 years.