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

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

Treasury Secretary Henry Paulson today said the bill willsend a ``very strong message'' and is ``key to helping us turnthe corner'' after a slide in confidence in the firms. The WhiteHouse dropped a veto threat over a measure to buy up foreclosedproperties that Democrats favored.

Legislators forged the agreement nine days after Paulsonasked for powers to inject capital into Fannie Mae and FreddieMac, arguing the step was vital to shore up the sources of almosthalf of U.S. mortgage financing. Shares of the companies ralliedon expectations that Congress will approve the bill this week.

``It's important to get this legislation in place, andCongress and Paulson have done well to put together a workmanlikebill,'' said Peter Wallison, a former Treasury general counselwho is now a fellow at the American Enterprise Institute inWashington.

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

Fannie Mae gained $2.23, or 17 percent, to $15.64 at 10:01a.m. in New York Stock Exchange composite trading. Freddie Macadded 83 cents, or 9 percent, to $10.53.

Bush to Sign

White House spokeswomanDana Perino today said PresidentGeorge W. Bush will sign the bill, removing the previous vetowarning over a provision to include $3.9 billion in aid tocommunities hit by the housing market collapse.

Representative Barney Frank, a Massachusetts Democrat whochairs the House Financial Services Committee, said the Housewill vote today, with the Senate expected to take it up tomorrow.He introduced the bill to reduce foreclosures in April.

``Nobody is for everything that's in it or got everything init he wanted, but we negotiated a lot,'' Frank told reporterslate yesterday.

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 $10.6trillion 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 in thefirms. He also asked for ``unspecified'' increases in their linesof credit, from $2.25 billion each. Both proposed measures wouldlast until the end of next year.

Challenged Bush

Democratic lawmakers challenged Bush with yesterday's dealby including a measure he has repeatedly threatened to veto.Perino maintained that although the White House thought it wouldhave the votes to uphold a presidential veto of the measure, timewas running out for action before legislators begin their summerrecess in August.

``We believe this is not the time for a prolonged vetofight,'' she said in a conference call with reporters.

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.

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 Bush for signing into law.

$12 Trillion

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.

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's aboutour capital markets more broadly,'' Paulson said in an interviewwith Bloomberg Television yesterday. ``We must, in the shortterm, 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.

Higher Cap

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.

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