Senate passes housing bill, but negotiations continue

WASHINGTON — A mortgage rescue and reform package completed its long and winding path through the Senate on Friday, passing 63-5. But homeowners and lenders will have to wait longer for the help it promises.

Supporters are determined to finish the legislation before starting a month-long recess in early August, but compromises on several key points are still needed to satisfy House Democrats and President Bush, who has threatened a veto.

The legislation would make it easier to refinance up to $300 billion in troubled mortgages. The goal is to prevent about 500,000 home foreclosures by moving distressed borrowers into more stable loans backed by the government. Many economists believe that without such action, home prices could plummet as foreclosures rise.

Sen. Johnny Isakson, R-Ga., a former Realtor, warned that "a veto of this legislation would be a disaster."

Isakson said that with housing market conditions worsening, negotiators from the Senate, House and White House must iron out their differences within days.

"If we don't act now, it's not going to matter what we do in 30 or 60 days," he said. The financial markets' reaction to Congress's failure would be immediate and punishing, he predicted.

"The markets realize that if we don't do this now, nothing is going to get done this year" because members of Congress will be busy campaigning in the fall, he said.

The legislation's primary author, House Financial Services Committee Chairman Barney Frank, D-Mass., repeatedly has promised to be flexible in the negotiations.

On the main points, the House and Senate agree. The package would:

— Modernize the Federal Housing Administration and allow it to insure up to $300 billion in new loans to provide struggling borrowers with cheaper fixed-rate mortgages.

— Create a strong federal regulator to oversee mortgage financing giants Freddie Mac and Fannie Mae. Those government-sponsored agencies buy mortgages from private lenders, freeing them to make new loans.

— Create additional tax breaks to encourage home ownership.

But the Senate and House differ in several ways:

— The Senate version would pay for the new FHA program by temporarily diverting funds from a new program to help low-income people obtain housing, a move that House Democrats don't support.

— The Senate would give more than $3.9 billion in grants for states to rehabilitate foreclosed properties to prepare them for sale to stabilize neighborhoods. But the White House says it will veto the legislation unless that funding is removed.

— The chambers differ over the limit on government backing for "jumbo" loans, which are more common in expensive areas of the country such as South Florida, the Northeast and California. The House wants to permanently lift the cap from $417,000 to $730,000, while the Senate wants to hike it to $625,000.

— The House bill offers a $7,500 tax credit for first-time buyers of principal residences. The Senate version calls for an $8,000 credit.

Because Senate rules make it easier for the minority party to block legislation, that chamber usually has a stronger hand to play in negotiations over the final version. Lawmakers know that to get a legislative package completed and sent to the president, they will have to win considerable support from Senate Republicans.

But the House Democrats also have some advantages, because the White House appears increasingly eager to complete the sweeping bill and provide relief for one part of the nation's economic problems.

On Friday, Treasury Secretary Henry Paulson said in a statement about the future of Fannie Mae and Freddie Mac that "we appreciate Congress's important efforts to complete legislation that will help promote confidence in these companies."

Isakson said he expects the negotiations to go quickly because the mortgage market is a mess. "The markets are in chaos," he said. Completing the legislation "should not take longer than the next week."