Veto Threatened for Housing Bill

The objection came as the Senate opened debate on the measure, Washington's most ambitious response to the nation's housing crisis. Under the proposal, the Federal Housing Administration could help troubled borrowers refinance loans with rapidly rising payments if their lenders agree to forgive a portion of their debt. If borrowers default on the new loans, the FHA would pay them off and take possession of the properties.

To cover that cost, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) and the panel's senior Republican, Sen. Richard C. Shelby (Ala.), cut a deal to temporarily divert a portion of a new affordable-housing fund that would get its cash from mortgage giants Fannie Mae and Freddie Mac.

Shelby had predicted that the White House would approve of the maneuver. But yesterday, the White House announced that administration officials oppose the creation of the affordable-housing fund, as well as its diversion to the FHA.

"While an expansion of FHA's reach is appropriate to help more homeowners, it must be done responsibly," the announcement said. "The Senate amendment would -- for the first time in FHA's history -- require non-program participants to subsidize its loan guarantees." The White House objects to that "degree of entanglement" between the government and Fannie and Freddie.

The administration raised other objections to the bill, which also would strengthen regulation of Fannie and Freddie; modernize the FHA; provide $4 billon for the purchase of vacant, foreclosed properties; and offer an $8,000 tax break to some first-time home buyers.

A large, bipartisan majority yesterday beat back efforts to gut or kill the bill.

Dodd and Shelby issued a statement urging the administration to reconsider its objection to "a compromise that will bring relief to hundreds of thousands of homeowners and the housing markets without putting the American taxpayer at risk."

Democrats chastised the administration for standing in the way of a measure so close to passage. A version of the legislation has passed the House, and "there's finally some light at the end of the tunnel" in the Senate, said Sen. Charles E. Schumer (D-N.Y.).

Sen. Mel Martinez (R-Fla.) called the bill a "good-faith, bipartisan effort to address this ongoing crisis."

Sen. Johnny Isakson (R-Ga.), the author of the home-buyer tax credit, said he disagrees with the administration's analysis that some provisions would hurt more than help. "I would be very surprised if they vetoed" the bill, Isakson said. "I would certainly be disappointed."