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House passes mortgage help despite veto threat

  • Story Highlights
  • House passes bill to help struggling homeowners 266-154
  • Plan would allow FHA to back $300 billion in new mortgages
  • Unclear whether Senate will pass bill
  • The White House strongly opposes the measure, believes it's a bailout
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WASHINGTON (CNN) -- A bill that would allow the government to guarantee new mortgages for homeowners facing foreclosure passed the House on Thursday, but it faces a veto threat from the White House and an uncertain fate in the Senate.

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House Democrats and the Bush administration are at odds over a bill designed to help struggling homeowners.

The bill was approved by a vote of 266-154.

A companion bill that would send $15 billion to states to buy and fix up foreclosed properties also passed the House by a vote of 239-188.

President Bush has threatened to veto both bills.

During the floor debate, many Republicans argued the bill amounts to a bailout of lenders and borrowers who made unwise bets that home prices would continue to rise.

But Financial Services Committee chairman Barney Frank, the main author of the bill, argued Thursday that the bill is structured to eliminate any "moral hazard" that would encourage borrowers to default on their loans.

"No borrower who goes through this process will say at the end of it 'Boy, that was fun. Where do I buy a ticket to get back on Space Mountain.' They will be deterred," Frank said.

The bill would authorize the Federal Housing Administration to guarantee up to $300 billion in new mortgages offered by government-approved private lenders.

The committee estimates the program could help 1.5 million homeowners who are having difficulty paying their mortgages.

The Senate prospects for the bill were unclear. Aides to Democratic and Republican senators on the Senate Banking Committee said they are working "around the clock" on similar legislation.

Sen. Chris Dodd of Connecticut, the Democratic chairman of the Banking Committee, said he expects the committee to take up the legislation next week.

Sen. Richard Shelby of Alabama, the ranking Republican on the Banking Committee, said he will look at the mortgage guarantees in the Frank bill but wants to know how the program would be paid for.

"I think if we reach a compromise, it would be acceptable to the White House because, as a Republican and former chairman of the committee, I'm going to do everything I can, work with the administration, to make sure that the program works for those it's intended to do and make sure we can afford it as a nation," Shelby said.

The bill would not authorize the government to loan money directly to homeowners, but rather to guarantee new mortgages offered by government-approved private lenders. The new mortgages could at most equal 90 percent of a home's current value. Video Watch how one homeowner got into trouble »

Only homeowners who have a mortgage-debt-to-income ratio of 35 percent or higher and who entered into a mortgage before January would qualify for the program.

For a homeowner to get a new FHA-backed loan, the holder of the current mortgage would have to accept a loss and take a payment totaling no more than 85 percent of the home's value.

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The government would also get a share of profits if the homeowner sold the house, but would have to pay the lenders only if homeowners defaulted on FHA-backed mortgages.

The Financial Services committee estimates that 1 to 2 percent of the new loans would default, costing the government between $3 billion and $6 billion.

CNN's Scott Anderson and Lesa Jansen contributed to this report.

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