House Lawmakers to Vote on Fannie-Freddie Rescue Plan Today (Bloomberg)

July 23 (Bloomberg) -- The House of Representatives is setto vote today on a rescue plan for Fannie Mae and Freddie Macafter U.S. lawmakers reached a deal on legislation aimed atalleviating the worst housing recession in a quarter century.

``The package we have got is fully acceptable'' to theTreasury, Representative Barney Frank, a Massachusetts Democratwho chairs the House Financial Services Committee, said lateyesterday. Legislators crafted the agreement nine days afterTreasury Secretary Henry Paulson asked for powers to injectcapital into Fannie Mae and Freddie Mac.

The agreement increases the likelihood Paulson will get theauthority this week, after he lobbied lawmakers to overcomeconcerns about taxpayer liability. The Treasury chief arguedthat the backstop for the beleaguered mortgage companies wascritical to help safeguard U.S. financial market stability.

``It's important to get this legislation in place, andCongress and Paulson have done well to put together aworkmanlike bill,'' said Peter Wallison, a former Treasurygeneral counsel who is now a fellow at the American EnterpriseInstitute in Washington.

Lawmakers added the provisions to legislation that wouldcreate a stronger regulator for Fannie Mae and Freddie Mac andexpand federal efforts to stem mortgage defaults. Frankintroduced the bill to reduce foreclosures in April.

Bush administration officials are reviewing the 694-pagebill. Frank told reporters in Washington the House will votetoday, with the Senate expected to take it up tomorrow.

Debt Limit

Lawmakers, intent on limiting potential losses to taxpayers,tied the potential aid to Fannie Mae and Freddie Mac to thefederal debt limit. Still, they also raised that ceiling to$10.6 trillion from the current $9.815 trillion.

Paulson, in an emergency move after Fannie Mae and FreddieMac stock dropped to the lowest levels in more than 17 years,asked July 13 for power to make unlimited equity purchases inthe firms. He also asked for ``unspecified'' increases in theirlines of credit, from $2.25 billion each. Both proposed measureswould last until the end of next year.

Democratic lawmakers challenged the White House withyesterday's deal by including a measure it has repeatedlythreatened to veto.

The provision would channel $3.9 billion to communities forthe purchase of foreclosed properties. Officials have said itwould aid lenders who now owned the vacated properties ratherthan struggling homeowners. House Democrats have predictedPresident George W. Bush wouldn't veto the bill.

`Play Politics'

``It's clear that the Democrats chose to play politics withthe legislation,'' White House spokesman Tony Fratto said in ane-mail, without mentioning any veto plans.

Frank's counterpart in the Senate issued a statementindicating he backs the bill.

``We remain optimistic about the prospects for thislegislation,'' Democratic Senator Christopher Dodd said in ajoint statement with Republican Senator Richard Shelby.

Dodd, of Connecticut, chairs the Senate Banking Committeeand Shelby, of Alabama, is the panel's top Republican. After theSenate, the bill would go to President Bush for signing into law.

Washington-based Fannie Mae and McLean, Virginia-basedFreddie Mac own or guarantee about half of the $12 trillion ofU.S. home loans outstanding. The companies face mounting lossesstemming from the collapse of the subprime market.

Drop in Stocks

Fannie Mae has dropped about 45 percent in the past month,and Freddie Mac has tumbled about 60 percent, on concern theyhave insufficient capital to cover writedowns and losses.

``This is about not only our housing markets, but it'sabout our capital markets more broadly,'' Paulson said in aninterview with Bloomberg Television yesterday. ``We must, in theshort term, take steps to boost confidence'' in the firms.

In addition to a new regulator, the bill provides for theFederal Reserve to consult on Fannie Mae and Freddie Macfinances. Paulson said this week that the Fed has already begunparticipating in assessments of the companies.

The housing bill would create a program aimed to help anestimated 400,000 Americans with subprime home loans refinanceinto 30-year, fixed-rate mortgages backed by the government.

Fannie Mae and Freddie Mac would have a new, higher cap onthe size of mortgages they may purchase. The new limit would be$625,000, or the median home price plus 15 percent, whichever islower, Frank said.

Mortgage Bonds

States would be able to offer an additional $11 billion ofmortgage-revenue bonds to refinance subprime loans.

Chances for the legislation's passage also got a boostyesterday when the Congressional Budget Office released a costestimate for Paulson's plan that was lower than some had feared.While a range of outcomes was possible, the non-partisan groupput a price tag of $25 billion on the proposals.

``It's pretty good news -- a lot of people thought it wouldbe much higher,'' Shelby said yesterday.

The CBO also warned of the consequences of Congress failingto approve the backstop.

``Failing to provide such authority at this point couldtrigger turmoil in the nation's financial and housing markets,with potentially serious adverse consequences,'' the CBO said,noting that markets are anticipating the measure's passage.

To contact the reporter on this story:Brian Faler in Washington at