Countrywide's sweetheart loans

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WASHINGTON (AP) -- A broad bipartisan coalition supporting a massive foreclosure rescue beat back GOP efforts to gut it Thursday, defying a White House veto threat and quashing a bid to make it victim to revelations about two senators' VIP mortgages.

Administration officials said they oppose the inclusion of $4 billion in the measure to help states buy and rehabilitate foreclosed properties, and a plan to have government-sponsored mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) pay for the rescue.

They announced those and other objections as two GOP senators said they would try to block the package until a committee can investigate how much Countrywide Financial Corp. (CFC, Fortune 500) and other lenders stand to gain from it.

House and Senate Republicans are voicing reservations about the bill in light of allegations that Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., one of its architects, and Senate Budget Committee Chairman Kent Conrad, D-N.D., got cut-rate home loans through a VIP program at Countrywide, a leading subprime lender at the center of the mortgage meltdown.

Both said they neither sought nor knew about the special treatment.

"This bill has come together in such a way as to raise questions all over this country that we need to answer before we move ahead," Sen. Jim DeMint, R-S.C., said.

The Senate rejected, 70-11, the move by DeMint and Sen. Jim Bunning, R-Ky., to send the housing package back to Dodd's panel which would have essentially killed the measure.

The election-year bill, which could help hundreds of thousands of struggling homeowners, appeared to be drawing wide bipartisan backing.

The Senate overwhelmingly defeated two amendments by Sen. Christopher S. "Kit" Bond, R-Mo., that would have derailed the measure. Both failed on margins large enough to override a promised veto, suggesting the plan could survive a showdown with President Bush.

Dodd and Sen. Richard C. Shelby of Alabama, the senior Banking Republican, said the veto threat was "disappointing," given that their compromise plan includes several elements Bush has demanded, and said they hoped the White House would reconsider.

"It's baffling why the White House would oppose a bill that would help so many American families at risk of losing their homes on the same day hundreds of mortgage fraud arrests were announced," said Barack Obama, the presumptive Democratic presidential nominee.

One of Bond's proposals, which failed on a 69-21 vote, would have killed the foreclosure rescue. The other, defeated 77-11, would have essentially doomed an affordable housing fund financed by Fannie and Freddie, leaving it - and the mortgage aid plan - without a source of money.

Democrats and many Republicans consider the measure a political imperative amid rising foreclosures and growing public anxiety about the sagging economy.

Its centerpiece is a foreclosure rescue program in which the Federal Housing Administration would provide $300 billion in new, cheaper mortgages for distressed homeowners who otherwise would be considered too financially risky to qualify for government-insured, fixed-rate loans.

Borrowers would be eligible if their mortgage holders were willing to take a substantial loss and allow them to refinance, and would ultimately have to share with the government a portion of any profits they made from selling or refinancing their properties.

The measure is designed to help hundreds of thousands of borrowers in danger of losing their homes, but it also would benefit mortgage holders by allowing them to avoid costly foreclosures and reclaim some of what they're owed by people facing financial ruin.

The bill would tighten controls on Fannie Mae and Freddie Mac - which provide huge amounts of cash flow to the mortgage market by buying home loans from banks - creating a new regulator for the firms.

It also would provide a $14.5 billion array of housing and other tax breaks, including a credit of up to $8,000 for first-time homebuyers who buy a home in the next year, and boosts in low-income tax credits and mortgage revenue bonds.

A group of 28 House Republicans wrote to Speaker Nancy Pelosi, D-Calif., on Thursday demanding an investigation - with open hearings - on the Countrywide allegations.

"At a time when millions of Americans are struggling to repay their mortgage debts while coping with $4 per gallon gasoline and soaring foods prices, they will be outraged to learn that some members of Congress may have personally profited from their official positions through secret sweetheart deals on their mortgages," said the letter, signed by House leaders.

They called the revelations "extremely troubling" in light of upcoming votes on the housing package.

Rep. Barney Frank, D-Mass., the House Financial Services chairman, said his panel won't look into the Countrywide case, given the panel's already full schedule and a pending Senate Ethics Committee probe of the matter.

He defended Dodd in a statement, saying, "At no point in any of our joint efforts has Senator Dodd shown even the slightest indication that he was in any way influenced by considerations other than what was best for the economy and the American people."

Still, Frank and other Democrats have serious concerns about the Senate housing measure that could frustrate leaders' desire to send it to Bush before Congress breaks for a weeklong July 4 vacation.