Bush threatens veto of housing aid

By JULIE HIRSCHFELD DAVIS Associated Press Writer

WASHINGTON (AP) - The White House on Tuesday threatened a veto of Democrats' broad housing rescue plan, calling it a burdensome bailout that would open taxpayers to too much risk.

The threat came as the House prepares to vote Wednesday on the package, which is aimed at preventing foreclosures and stabilizing the housing market. The veto threat signaled that despite growing GOP support for the measure, especially among Republicans from areas hardest hit by the housing crisis, the plan could become mired in a partisan spat over which party is doing more to help homeowners in need.

Democrats' housing plan, written by Rep. Barney Frank, D-Mass., would allow the Federal Housing Administration to insure up to $300 billion in new mortgages for struggling homeowners currently too financially strapped to qualify for such loans.

To sweeten the deal for Republicans, most of whom regard the measure as an overly risky bailout of irresponsible borrowers, Democrats plan to include a grab bag of measures President Bush has called for.

Those include legislation to overhaul the FHA, the Depression-era mortgage insurer, and to more tightly regulate Fannie Mae and Freddie Mac, the government-sponsored companies that finance home loans. Also part of the plan is a measure, which Bush has repeatedly requested, allowing state and local housing finance agencies to use tax-exempt bonds to refinance distressed subprime mortgages.

"You can't always get what you want, exactly. But this is a very real effort to reach out and find common ground," Frank said.

But in a statement released Tuesday evening, the White House said it was opposed to virtually the entire package.

Relaxing FHA's standards to let debt-ridden homeowners to refinance into affordable, fixed-rate mortgages would "force FHA and taxpayers to take on excessive risk, and jeopardize FHA's financial solvency," said the statement from Bush's budget office.

It also said a central requirement of the bill - that lenders accept substantial losses on the original loans so that homeowners can refinance into a mortgage they can afford - would ensure the government would be on the hook for the worst-performing loans, increasing the plan's cost for taxpayers.

Frank, working closely on his plan with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, has found some GOP backers. But party leaders strongly oppose the bill, which they say would help reckless borrowers who overextended themselves, unscrupulous lenders, and investors who tried to game the market at the expense of renters and homeowners who made wiser choices.

The measure is "going to reward scam artists and reward those who were speculating in the marketplace," said Rep. John Boehner of Ohio, the House Republican leader. "To ask American taxpayers to bail out those who were scamming the system I think is very, very unfair."

The plan is to be combined with $11 billion in housing tax breaks, including a $7,500 credit for first-time home-buyers that functions like a zero-interest government loan, to be paid off over 15 years.

As part of the package, the House is scheduled to vote on an amendment - strongly opposed by the financial services industry but championed by governors - that would ensure that neither the FHA plan nor other banking laws pre-empt state foreclosure laws. It's aimed at letting states that have recently moved to make it harder to evict homeowners continue those efforts.

The House also plans a vote on a separate bill - which also received a veto threat Tuesday - to send $15 billion to states for the purchase and rehabilitation of foreclosed properties in the hardest-hit areas.

Critics say it would reward lenders, many of whom are partly to blame for the housing chaos, and act as an incentive for them to foreclose rather than find ways to help struggling borrowers stay in their homes.