By Tabassum Zakaria
WASHINGTON (Reuters) - President George W. Bush onWednesday dropped a threat to veto a housing rescue bill,clearing the way for measures meant to shore up the worst U.S.home market since the Great Depression.
A White House spokeswoman said Bush would sign the billbecause it is needed promptly to address a housing and creditcrisis, despite concerns about a provision that would providegrants to communities to buy and repair foreclosed homes.
"We do not believe we have time for a prolonged vetofight," spokeswoman Dana Perino said.
Removal of the presidential veto threat spurred investorsto snap up shares and bonds of mortgage finance companiesFannie Mae and Freddie Mac, which would receive an emergencygovernment lifeline under the bill.
Concerns over the health of the two government-sponsoredbut privately held companies, which own or have guaranteedalmost half of the $12 trillion (6 trillion pounds) in U.S.mortgage debt outstanding, had dashed hopes for recovery inbattered U.S. housing and credit markets. Analysts had warnedof a financial catastrophe if they were to collapse.
Lawmakers have moved with unusual speed since the Bushadministration proposed establishing a temporary financialbackstop for the two companies just 10 days ago.
The House of Representatives was expected to approve therescue package later on Wednesday; it would then go the Senatefor final passage. Senate Majority Leader Harry Reid said hewanted to send the measure to the president on Wednesday, butcautioned Republican lawmakers could delay it.
TOO IMPORTANT
Treasury Secretary Henry Paulson said on Wednesday herecommended that Bush drop his objections because reforms forFannie Mae and Freddie Mac, the nation's two biggest mortgagefinance companies, were too important.
"What we're doing with the GSEs is orders of magnitude moreimportant than any of the other parts of this housinglegislation," Paulson told reporters at an impromptu newsconference.
Shares of Fannie Mae and Freddie Mac surged after stockmarkets opened. Fannie Mae climbed more than 20 percent to$16.35 a share, while Freddie Mac was up about 12 percent at$10.87 a share in morning trading.
In a further sign market concerns about the companies arerelaxing, risk premiums on debt issued by the two companiesnarrowed. Priya Misra, an interest rate strategist atinvestment bank Lehman Brothers, said the legislation "makes iteasier for them to raise capital."
Fannie Mae on Wednesday sold $3 billion in short term debtat higher interest rates than a week earlier. The rates,however, rose less than a benchmark investors use to judgevalue, showing decent demand for the deal.
STRONGER REGULATOR
Lawmakers late on Tuesday put finishing touches on thelegislation and congressional budget analysts put a $25 billionpotential price tag on the provision to bolster Fannie Mae andFreddie Mac, which was drafted by the Bush administration andadded to a bill that has been in the works for months.
The overall measure now has wide, bipartisan support inboth the House and the Senate, Massachusetts Democratic Rep.Barney Frank, the chief architect of the bill, said on Tuesday.
The added measures would give beleaguered Fannie Mae andFreddie Mac access to an expanded credit line from the U.S.Treasury. In addition, it authorizes the Treasury to purchaseequity in the two companies if necessary.
More broadly, the measure would set up a new regulator forthe companies and raise the size of mortgage loans that theyand the Federal Housing Administration can guarantee. It wouldpermit the FHA to refinance up to $300 billion in mortgagesfacing foreclosure.
The new regulator for Fannie Mae and Freddie Mac, theresult of years of debate over reining in the powerfulgovernment-sponsored enterprises, could have substantialauthority over executive pay at the two companies if they wereto tap into the new Treasury capital line.
In addition, the measure would empower the Treasurysecretary to restrict dividend payments if they were to reachfor the lifeline.
It would also give the Federal Reserve a "consultativerole" in setting capital requirements and ensuring thefinancial soundness of the mortgage enterprises.
(Additional reporting by David Lawder, Richard Cowan andKevin Drawbaugh, writing by Mark Felsenthal; Editing by NeilStempleman)
