Mortgage bill one step closer after Senate approval

Fixed rates, tax incentives part of $300 billion plan

By Brian Faler, Bloomberg News

Friday, July 11, 2008

Sen. Christopher Dodd says no need for panic over Fannie, Freddie woes

President Bush initially signaled veto over some provisions

The U.S. Senate passed a $300 billion plan to help thousands of Americans keep their homes and tighten regulation of Fannie Mae and Freddie Mac in an effort to ease the worst housing slump since the Great Depression.

The legislation, approved 63-5 Friday, 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 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 it would benefit lenders who own the vacated properties rather than individuals struggling to remain in their homes.

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.

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.

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.