Conflict over housing crisis threatens rescue package

President Bush flanked by House Minority Leader John Boehner, R-Ohio, right, and House Republican Whip Roy Blunt, R-Mo., left, walks from Cross Hall to make a statement, Wednesday, May 7, 2008, after he met with the House Republican Conference in the East Room, of the White House. Bush criticized Congressional Democrats' approach in dealing with the U.S. housing crisis and soaring energy prices, and urged them not to expand a $108 billion (euro70 billion) Iraq war bill with issues such as extended unemployment benefits. (AP Photo/Ron Edmonds)

WASHINGTON—President Bush and Congress are clashing over how to address the housing crisis, clouding the prospects of an election-year rescue package.

Bush said Wednesday he would veto Democrats' broad housing aid plan, saying it wouldn't help struggling homeowners.

"We are committed to a good housing bill that will help folks stay in their house, as opposed to a housing bill that will reward speculators and lenders," Bush said at the White House after meeting with House Republican leaders.

The centerpiece of the housing package, aimed at preventing foreclosures, would have the government step in to insure up to $300 billion in new mortgages for distressed homeowners.

The White House has also threatened that Bush would veto a separate measure to send $15 billion to states hit hard by the housing crisis for the purchase and rehabilitation of foreclosed properties. It's aimed at preventing blight in neighborhoods plagued by high foreclosure rates.

The House is expected to vote on both bills on Thursday.

The two parties sparred bitterly on the housing measures Wednesday, with Republicans saying they would help reckless borrowers who overextended themselves, unscrupulous lenders, and investors who tried to game the market at the expense of renters and homeowners who made wiser choices.

Rep. Shelly Moore Capito, R-W.Va., called the $15 billion foreclosed property program "an unnecessary government intervention in the housing market which will bail out real estate speculators, services and lenders while doing nothing to assist hardworking Americans struggling to make their mortgage payments."

Rep. Barney Frank, D-Mass., the author of the broader housing package, said it was time for the government to step in.

"It was this religion of never intervening that brought us here. A limited intervention to undo the negative consequences is what this bill calls for," said Frank, the House Financial Services Committee chairman.

Frank's measure would relax standards at the Federal Housing Administration so it could back more affordable, fixed-rate loans for borrowers currently too financially strapped to qualify.

Those homeowners could refinance into new loans if their lenders agreed to take substantial losses on the original mortgages. Borrowers would have to show they could afford to make payments on the new loans. They would have to share with FHA at least half of their proceeds if they profited from selling or refinancing again.

Despite some GOP support for the plan, especially among Republicans from areas hardest hit by the housing crisis, it could fall victim to an election-year fight over which party is doing more to help homeowners in need.

The White House calls the plan a burdensome bailout that would open taxpayers to too much risk.

Treasury Secretary Henry Paulson on Wednesday called the plan too broad. In an interview with The Associated Press, Paulson said the administration would continue negotiating with Congress to come up with an acceptable bill, but he did not offer any details of what kind of mortgage relief the administration would support.

"Housing is an important area and there are certain things that we need to get done there from Congress," he said. "We are working to get a housing bill that the president can sign."

The opposition comes despite Democrats' attempts to attract Republican support for their housing package by attaching a grab-bag of measures Bush has called for.

Those include legislation to overhaul the FHA, the Depression-era mortgage insurer, and to more tightly regulate Fannie Mae and Freddie Mac, the government-sponsored companies that finance home loans. Also part of the plan is a measure, which Bush has repeatedly requested, allowing state and local housing finance agencies to use tax-exempt bonds to refinance distressed subprime mortgages.

The plan's main element by Frank is projected to help roughly 500,000 borrowers at a cost of $2.7 billion over the next five years.

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Associated Press writers Jeannine Aversa and Andrew Taylor contributed to this report.