U.S. House passes bill to help homeowners, giant mortgage companies

The U.S. House of Representativeshas approved a bill to help 400,000 homeowners struggling to avoid foreclosure and allow two giant mortgage companies to get government money.

Until Wednesday,U.S. President George W. Bush had been threatening to block the bill because of a provision that would give $3.9 billion US to areas hard hit by thehousing crisis.

White House press secretary Dana Perino told reporters Wednesday thatBush now agreedwith the bill. "We believe this is not the time for a prolonged veto fight," she said.

The bill:

• Gives the Treasury Department the power to lend unlimited amounts to extend Fannie Mae and Freddie Mac, two stressed mortgage companies which back or own $5 trillion in U.S. mortgages, nearly half the country's total.
• Enablesthe government to help hundreds of thousands of struggling homeowners get cheaper,fixed-rate loans backed by the U.S. Federal Housing Administration (FHA).
• Provides $3.9 billion for neighbourhoods suffering from the housing crisis.
• Provides $15 billion in housing tax breaks, including a credit for people who bought or will buy their first homebetween April 9, 2008, and July 1, 2009.

Bushbacked the bill to support Fannie and Freddie, which arevital players in the U.S. market, but he opposed the $3.9-billion provision because he said it would help lenders, not homeowners.

"The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets," Perino said. "While we have concerns with other aspects of the bill, it is important that the new authorities are put in place promptly," before politicians take their summer break.

The bill would let somehomeowners avoid foreclosure by getting FHA-backed loans,but lenders would take losses on the same loans. However, that means they would get something, and would avoid themessy foreclosure process.

Moreover, avoiding foreclosures means the properties will not be forced onto the market, driving down prices and leading to even more foreclosures.

The loansto Fannie Mae and Freddie Maccould cost $25 billion if needed but analysts have said that may not happen. The companies and government officials have said they are well capitalized, but investors have bid their shares down to a fraction of their peak prices.

The plan tightens lending controls on the two companies, which were created by the U.S. government to make home ownership easier but are owned by investors.

Concern about their mortgage dealings became a focus for the government because of the lack of investor confidence.