Vote looms in Congress on housing rescue plan

[Ron Burgundy]

Reuters - A major rescue package for the U.S. housing market is scheduled to come to a vote in the House of Representatives on Wednesday, with lawmakers agreeing final language late on Tuesday and congressional analysts putting a $25-billion potential price tag on a new provision.

Designed to bolster Fannie Mae and Freddie Mac, the nation's biggest mortgage companies, the provision drafted by the Bush administration was added to a bill that has been in the works for months.

The overall measure now has wide, bipartisan support in both the House and the Senate, said Massachusetts Democratic Rep. Barney Frank, chief architect of the legislation.

The added provision, proposed by Treasury Secretary Henry Paulson, would give beleaguered Fannie and Freddie access to new, government capital in the form of loans or equity purchases.

The stock prices of both Fannie and Freddie have seesawed wildly in recent days on investor concern about whether the two government-sponsored enterprises, or GSEs, will be able to ride out the worst U.S. housing market slump in decades.

The firms own or guarantee almost half of the nation's $12 trillion in outstanding residential mortgage debt. They are playing an increasingly vital role in the housing market, with foreclosures up, home values down and global capital in full retreat from private markets for securitized mortgage debt.

In estimating the potential cost to taxpayers of the Paulson proposal, the nonpartisan Congressional Budget Office (CBO) said it was uncertain whether the GSEs would ever need to tap the capital line that Paulson wants to offer.

The CBO's $25-billion estimate was couched in language that made clear the cost could also be zero, if the capital line is never tapped. At the same time, the CBO said there was a slim chance that the GSEs' losses could top $100 billion.

The White House has urged Congress to move quickly to approve the Paulson plan, citing the GSEs' importance.

But a Bush administration spokesman on Tuesday evening criticized Democrats on Capitol Hill over the 694-page bill that will include Paulson's GSE rescue plan.

"PLAYING POLITICS'

"It's clear that the Democrats chose to play politics with the legislation, and unfortunate that they're doing it with legislation that will prevent systemic risk to our financial system," said White House spokesman Tony Fratto.

Steven Adamske, a spokesman for Frank, replied: "We will wait to read the official statement of administration policy -- which we have not seen -- rather than respond to political hacks who clearly have no idea what is at stake here."

Paulson used a speech in New York and television interviews on Tuesday to push for passage of his GSE rescue plan, a key part of a package for which some senators signaled support.

"We remain optimistic about the prospects for this legislation," said the Senate Banking Committee's leaders -- Connecticut Democrat Christopher Dodd and Alabama Republican Richard Shelby -- in a joint statement on Tuesday evening.

If the package moves through the House on Wednesday, it would then go to the Senate. Once approved by the Senate, possibly before the weekend, the bill would go before President George W. Bush.

While the White House favors much of the bill, it has threatened to veto it over a provision that calls for almost $4 billion in grants to states and communities for buying and repairing foreclosed homes in distressed neighborhoods.

The White House opposes the measure because it says it helps lenders and not homeowners. Democrats backing the grants dispute this, saying that foreclosed homes drag down property values for surrounding homeowners.

REFINANCINGS TARGETED

Under language agreed to by lawmakers, the bill would also give the Federal Housing Administration (FHA) a role in helping thousands of troubled homeowners refinance from costly, exotic mortgages into more affordable, government-backed loans.

It would set up a new regulator for the GSEs and raise the size of mortgage loans that the GSEs and FHA can guarantee.

The new GSE regulator would have substantial authority over executive pay at Fannie and Freddie, while empowering the Treasury secretary to restrict dividend payments by the GSEs if they tap into the new Treasury capital line.

Finally, the bill would leave the secretary to decide what kind of equity investment the government might make in Fannie or Freddie, if it makes any at all.

Shares in Fannie closed down 5.1 percent at $13.41, while Freddie shares finished up 10.9 percent at $9.70, on a day of broadly bullish trading on the New York Stock Exchange. They are down 66.5 percent and 71.5 percent, respectively, so far this year.

In related news, short selling of Fannie and Freddie stock, in which investors look to profit from a fall in the shares, have declined 90 percent since an emergency rule against abusive short sales took effect, said market data firm S3 Matching Technologies.

In addition, market regulators are cooperating on examining the GSEs' books, a spokesmen for the Federal Reserve and the Office of the Comptroller of the Currency said.

(Additional reporting by Richard Cowan, David Lawder, Mark Felsenthal, John Poirier, Thomas Ferraro, Tabassum Zakaria and Jeremy Pelofsky in Washington; with Emily Chasan and Burton Frierson in New York)

source: http://news.yahoo.com/s/nm/20080723/ts_nm/fannie_freddie_dc [link]