Veto threat hangs over housing bill

President Bush and Congress have settled their differences on terrorist surveillance and Iraq war funding. Now, attention turns to a potential housing rescue, probably the last major initiative with any chance of passing before lawmakers scatter to campaign for re-election.

Mr. Bush has threatened a veto. But lawmakers in both parties say the housing legislation is a political imperative, and negotiators see the makings of a summertime bargain.

For one, the measure contains elements that Mr. Bush long has demanded. They include modernizing the Depression-era Federal Housing Administration and creating a new regulator for the government-sponsored mortgage companies Fannie Mae and Freddie Mac.

Then there is the political reality for the president: Many Republicans are facing a darkening re-election outlook amid tough economic times and are reluctant to oppose a measure intended to address the crux of the financial crisis.

Sen. Richard C. Shelby of Alabama, the top Republican on the Senate Banking, Housing and Urban Committee, says he hopes Mr. Bush will reconsider his veto threat. Insiders said the tepid wording of the threat, combined with intense behind-the-scenes negotiating by Treasury Secretary Henry M. Paulson Jr. to reach a deal, suggest the White House may be doing just that.

“The American people expect us to provide effective and timely solutions the best we can,” Mr. Shelby said.

Sen. Charles E. Schumer, New York Democrat and head of his party’s Senate campaign committee, said the veto threat was “weird and wild” in light of Mr. Bush’s demands for specific proposals that are in the legislation.

But Mr. Schumer said Democrats would be more than happy to bash Republicans for the demise of the housing rescue.

“This president is further and further removed from the economic realities of this nation. To veto this bill at a time when housing is at the nub of our economic crisis, at a time when housing prices are declining, at a time when foreclosures are increasing, makes no sense whatsoever,” Mr. Schumer said.

The bill would allow the FHA to insure $300 billion in new loans so homeowners who cannot afford their house payments could refinance into cheaper, fixed-rate mortgages.

An important test vote comes Tuesday, with a final Senate vote expected soon after. That probably will open a new phase of talks to work out differences with the House in hopes of sending the bill to Mr. Bush in July.

The housing crisis has ensnared many borrowers who had questionable credit histories and who obtained risky subprime loans. Such loans have reset to higher rates and home values have plummeted.

The housing plan is designed to respond to the crisis. Mortgage holders would have to agree to take a substantial loss on the original loans, bringing them more in line with the depressed value of the homes.

Some Republicans, including House Minority Leader John A. Boehner of Ohio, say that approach amounts to a bailout for reckless homeowners who borrowed more than they could afford and for banks that exploited foolish consumers with too-good-to-be-true loans.