The House sent the Senate sweeping legislation Thursday aimed at slowing the pace of foreclosures and stimulating the real estate market.

Members approved the legislation as three separate amendments to a narrower Senate-passed housing measure (HR 3221).

Lawmakers by 266-154 adopted the centerpiece of the package, an amendment that combined several major pieces of legislation: an overhaul of mortgage finance companies Fannie Mae and Freddie Mac, a modernization of the Federal Housing Administration and an expansion of the FHA’s loan programs aimed at helping borrowers get out from under mortgages they can’t afford.

Under the proposed expansion of FHA authority, borrowers threatened with foreclosure could get help refinancing into new, affordable fixed-rate mortgages. Both lenders and borrowers would have to voluntarily participate in the program, and the mortgage holder would have to agree to a substantial write-down of the original loan. Homeowners would have to share with the government any future appreciation of their home’s value under the new loan.

While nearly 40 Republicans bucked the party line to support the FHA rescue plan, the vote total was short of the two-thirds majority that would be needed to override a White House veto threat.

Based on expectations for future foreclosures and potential participation, the Congressional Budget Office estimated about 500,000 borrowers would refinance under the new FHA program.

The total cost of the program — which includes the cost of new mortgages that go bad — would be about $2.7 billion over the 2008 to 2013 period.

Lawmakers voted 322-94 to adopt the second piece of the housing package (HR 5720). It would establish a refundable tax credit of up to $7,500 for first-time homebuyers that would serve as an interest-free loan, and it provides an additional standard deduction in 2008 of up to $350 for individuals and $700 for couples for state and local property taxes.

It also would authorize an additional $10 billion in tax-exempt bonds that would be used to refinance subprime loans, finance the construction of low-income rental housing, and support loans to first-time homebuyers, and it increases the number of low-income housing tax credits.

And finally, the House adopted, 256-160, and amendment by North Carolina Democrat Brad Miller and Ohio Republican Steven C. LaTourette that would prevent any provision in the bill or two major federal banking statutes — the Home Owner’s Loan Act or the National Bank Act — from pre-empting any state law dealing with residential foreclosures.

The Bush administration has called for Congress to approve the mortgage revenue bond provisions, the FHA modernization and a regulatory overhaul of Fannie and Freddie.

But the White House has threatened to veto the overall packageover the provision to allow the FHA to back refinanced loans, calling that a bailout for mortgage investors that could endanger the FHA’s fiscal health.

House Financial Services Chairman Barney Frank, D-Mass., said the veto threat could be a negotiating strategy, and that there are “internal debates” within the White House over what to do about the package.

Earlier, the House passed a bill aimed at easing the foreclosure burden on cities and states.

Sponsored by Maxine Waters, D-Calif., the bill (HR 5818) would establish a $15 billion loan and grant program to help states purchase and rehabilitate owner-occupied foreclosed properties.

The House passed the measure 239-188.

Before that, House lawmakers voted 391-33 to adopt an amendment by Rep. Jason Altmire, D-Penn., to clarify that illegal immigrants are not eligible for financial assistance under the bill.

Rep. John Shadegg, R-Ariz., offered a motion to recommit the bill that sought to add language to bar sex offenders, drug dealers and perpetrators of mortgage fraud from buying homes made available under the program. The motion, which was rejected 210-216, also would have given preference to veterans for receiving grants and loans under the bill.

Shadegg said the underlying bill amounted to “a giveaway to the mortgage industry that made bad loans.”

But House Financial Services Chairman Barney Frank, D-Mass., said the motion to recommit could stall the bill. He noted that an amendment from Rep. Thaddeus McCotter, R-Mich., adopted Wednesday by voice vote, added priority treatment for veterans and members of the armed forces.

The measure’s long-term fate is uncertain. The Bush administration has threatened to veto the bill, saying it “would constitute a costly bailout for lenders and speculators and would delay the economic recovery it purports to advance.”

The bill requires each state’s loan and grant authority to be based on the state’s percentage of nationwide foreclosures over the last four calendar quarters, adjusted to account for the state’s relative median home price.

The White House says the principal beneficiaries of the plan would be private lenders, who are now the owners of the vacant or foreclosed properties, instead of struggling homeowners.

First posted May 8, 2008 1:01 p.m.