12 Jul 2008

US Senate sends housing rescue bill to House

7:19 pm on 12 July 2008

After weeks of wrangling, the United States Senate on Friday completed work on its plan to save hundreds of thousands of American homeowners and their families from foreclosure and sent it to the House of Representatives.

The legislation is opposed by the White House. Differences with the House, which approved a similar measure of its own, must be resolved before a final bill can be sent to President George W Bush in the hope he will sign it into law.

On Friday night, the White House issued a statement renewing a warning that Mr Bush will veto any final proposal if it retains a provision in the Senate bill offering block grants to states to buy foreclosed homes, which the White House contends is too generous toward lenders.

Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said he was optimistic small disagreements with the House would quickly be resolved and that Congress could finish the legislation as early as next week.

At the heart of the bill is a multibillion-dollar fund to help an estimated 400,000 financially strapped homeowners swap their shaky loans for fixed-rate, 30-year mortgages.

It would also overhaul regulation of Fannie Mae and Freddie Mac, the nation's largest mortgage finance companies, while sending federal money to states and communities to buy and renovate foreclosed properties.

The Senate actually approved its bill, 79-16, shortly before its Fourth of July recess. But it was unable to transmit it to the House until dealing with a series of motions and delays that drew fire from backers who said homeowners needed help urgently.

"Every single day between 8,000 and 9,000 people file for foreclosure. In the month of June, 250,000 people moved into that category," Mr Dodd, a chief sponsor of the bipartisan bill, said.

Mortgage companies 'sound'

Fannie Mae and Freddie Mac say their finances can withstand the housing crisis, despite turmoil in the share prices on Friday.

At one stage, the companies' shares had lost almost half their value. Fannie Mae stocks closed down 22% while Freddie Mac ended just 3.1% down.

Government officials scrambled to restore confidence in the companies.

Treasury Secretary Henry Paulson indicated that a bailout was unlikely despite financial market concerns that the agencies, which finance nearly half of US homes, may have trouble raising enough money to keep buying mortgages.

Senator Dodd said the Federal Reserve was considering allowing the companies to borrow directly from the central bank, spurring speculation that the Federal Reserve may take action as early as this weekend.

He said he had spoken with Federal Reserve chairman Ben Bernanke and Mr Paulson and they were looking at various options, including opening access to the discount window, through which the central bank acts as a lender of last resort for the US banking system.

Investors were worried that the mortgage agencies might run short of capital, placing the fragile US economy at even greater risk and deepening the housing slump.

However, Mr Dodd said the institutions were fundamentally sound and strong.