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WASHINGTON — President Bush signed into law on Wednesday a huge package of housing legislation that included broad authority for the Treasury Department to safeguard the nation’s two largest mortgage finance companies and a plan to help hundreds of thousands of troubled borrowers avoid losing their homes.
Mr. Bush signed the legislation, which Congress approved last week, shortly after 7 a.m. in the Oval Office, the deputy White House press secretary, Tony Fratto, said.
The law authorizes the Treasury to rescue the mortgage finance giants, Fannie Mae and Freddie Mac, should they verge on collapse, potentially by spending tens of billions in federal monies. Together, the companies own or guarantee nearly half of the nation’s $12 trillion in mortgages.
Partly to accommodate the rescue plan for the mortgage companies, the bill raises the national debt ceiling to $10.6 trillion, an increase of $800 billion. The bill also creates significant liabilities and risks for taxpayers, that are virtually impossible to calculate.
“We look forward to put in place new authorities to improve confidence and stability in markets, and to provide better oversight for Fannie Mae and Freddie Mac,” Mr. Fratto said. “The Federal Housing Administration will begin to implement new policies intended to keep more deserving American families in their homes.”
A half-dozen top advisers to the president, including the Treasury secretary, Henry M. Paulson Jr., who was the leading advocate of the legislation in the administration attended the signing. But it was not a particularly auspicious occasion given the precarious state of the nation’s financial system, and the pressure that Mr. Bush came under to sign a bill that contained provisions he had opposed.
Though the legislation was the product of months of intensive work by lawmakers in both parties and has been hailed as the most aggressive intervention by the government into the housing market in more than a generation, perhaps since the New Deal, no members of Congress were invited to the signing.
The enactment of the legislation comes in the same week that the administration announced that Mr. Bush would leave behind a record $482 billion deficit, which will probably grow substantially if home values continue to decline and if there are further reductions in corporate and personal income as many economists are forecasting for the rest of the year. Because of the growing deficit, Democrats said, the debt ceiling had to be lifted regardless of the housing bill.
The new housing law includes a plan aimed at helping as many as 400,000 homeowners pay off their troubled mortgages and replace them with more affordable, government-insured loans. The program is voluntary and the lenders must agree to take a sizable loss, reducing the principal of each loan, before they can be refinanced.
The law authorizes the Federal Housing Administration to insure up to the $300 billion in such loans but the Congressional Budget Office has estimated that only $68 billion of that authority is likely to be used. The original lenders will have to pay upfront fees into an insurance fund, and borrowers will pay continuing insurance premiums of 1.5 percent a year to insulate taxpayers against losses from defaults.
The budget office has estimated that 35 percent of the refinanced loans will end up in trouble again.
The authority for the Treasury Department to help Fannie Mae and Freddie Mac is limited only by the debt ceiling. The budget office has said that a $25 billion expense should appear on the federal budget for the next two fiscal years, representing its best estimate of how much the program will end up costing taxpayers.
But the budget office said there was a better than 50 percent chance that the rescue authority would not be used, and there would be no cost, while there was a 5 percent chance that one or both of the mortgage giants would lose another $100 billion or more, costing taxpayers a vast sum.
Some experts have said that the law was wrong-headed in its effort to retain the hybrid nature of the mortgage finance giants, which are private companies with publicly traded stock, but which now have an explicit guarantee of help from the government — an arrangement that critics say privatizes the profits but socializes the risk and any losses.
David M. Walker, the former comptroller general of the United States and head of the Government Accountability Office who is now president of the Peter G. Peterson Foundation, said that Mr. Bush might have been unwise to sign the measure.
“Providing authority to the secretary of the Treasury to extend credit or to buy stock is one that will end up costing the taxpayers tens of billions of dollars,” Mr. Walker said in an interview earlier this week.
Mr. Walker noted that other government interventions in the private market, including a rescue of the Chrysler automobile company had provided an opportunity for taxpayers to profit. But when it comes to the mortgage giants, he said, there is no upside.
“The way this is structured,” he said. “It’s only a matter of how much the taxpayers are going to lose.”
Supporters of the legislation — including Senator Christopher J. Dodd, Democrat of Connecticut and Senator Richard C. Shelby, Republican of Alabama, the leaders of the banking committee, and Representative Barney Frank, Democrat of Massachusetts, the main author of the legislation in the House — say the law represents the best way to help stabilize the housing market, potentially putting a solid floor under declining prices.
The bill includes an array of other aid for troubled borrowers, and about $15 billion in housing-related tax breaks. It also includes nearly $4 billion grants to local governments to buy and refurbished foreclosed properties, which Mr. Bush had opposed even as he signed the measure. The White House views that provision as a giveaway to banks and other lenders who own the seized properties.
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