U.S. House Approves Mortgage Bill to Protect Fannie and Freddie

The U.S. Senate today was expected to start considering, and perhaps even vote on, a bill that would shore up government sponsored entities (GSEs) Freddie Mac and Fannie Mae as well as provide funding for communities hardest hit by foreclosures to buy and fix up foreclosed properties. The bill passed the House Wednesday.

According to several reports, President Bush at one time had threatened to veto the legislation due to a provision that would provide $3.9 billion to local governments to fund and fix up foreclosed properties, but dropped opposition to the bill once it became apparent that his desire for housing help for Fannie and Freddie wouldn’t be approved otherwise, said White House press secretary Dana Perino during a press briefing Wednesday.

“Given that the housing legislation is so essential right now, and that we need it promptly, the President agreed to accept Secretary Paulson’s recommendation that it was more important to accept the bill in this form so that we could get the housing reforms in the form of the GSEs, and to go ahead and sign the bill, even though it has the [community development block grants] money in it,” Perino explained.

The legislation as it currently stands would also give the Treasury Department temporary authority, until Dec. 31, 2009, to lend money to the GSEs or to buy their stock to avert a collapse of either firm.

The House bill also creates a new regulator for the GSEs. The new regulator would authorize pay packages for company executives.

Other provisions designed to help the current housing problems include: Enabling the Federal Housing Administration to ensure as much as $625,000 per loan in high-cost areas, and the ability to buy loans 15 percent higher than the median home price in some areas; provide $15 billion in various housing tax breaks and offer protection from investor lawsuits for mortgage holders that modify loans to borrowers who are in or are in danger of default.

However, the legislation does not address other potential suits. The city of San Diego said Wednesday that it had filed a lawsuit against Bank of America, and subsidiary Countrywide, seeking to prevent foreclosures. According to reports, the city plans similar lawsuits against other large mortgage lenders.