May 9 (Bloomberg) -- The U.S. House of Representatives passed legislation to let a federal agency insure up to $300 billion in mortgages to help homeowners avert foreclosure, a day after the White House threatened to veto the measure.

The House voted 266-154 yesterday to approve the housing package offered by Massachusetts Democrat Barney Frank. The plan would allow the Federal Housing Administration to insure refinanced mortgages after loan holders agree to cut principal to make payments affordable.

``We're in a recession and a major cause of that recession is the subprime crisis,'' Frank, chairman of the House Financial Services Committee, said on the House floor before the vote. ``We do not see any alternatives to this bill.''

Democrats in Congress are at odds with Republican lawmakers and the Bush administration over efforts to stem foreclosures amid the worst housing slump in a quarter century. The White House favors a voluntary, industry-led program to modify loan terms and this week issued a veto threat against Frank's bill.

Republicans oppose using government funds, saying that would reward lenders and investors who acted recklessly and is unfair to homeowners who are keeping up with mortgage payments. Democrats including Frank say government funding is needed to preserve neighborhoods and help homeowners who were steered into loans they couldn't afford.

A vast majority of Americans ``are now going to assume responsibility for ill-advised financial decisions and misjudgments of other people,'' said Representative Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee, on the House floor before yesterday's vote.

Bernanke Support

Frank's FHA proposal would cost $2.7 billion and help about 500,000 homeowners, according to a Congressional Budget Office estimate. Federal Reserve Chairman Ben S. Bernanke indicated support for the plan during a May 5 speech without explicitly endorsing it.

The Democrats' housing package also would expand the FHA's role in insuring mortgages and strengthen oversight of Fannie Mae and Freddie Mac, the government-chartered companies that are the biggest sources of money for U.S. mortgages. It includes a provision that would shield loan-servicing companies that modify mortgages from investor lawsuits.

Frank said the bill does ``to some extent'' represent a bailout for borrowers who made mistakes and got in over their heads.

``Some people make bad job choices -- we give them unemployment compensation,'' Frank said yesterday in a Bloomberg Television interview after the vote. ``We are in an interconnected economy.''

The legislation didn't get the two-thirds majority vote necessary to override a presidential veto, he said.

Dodd Legislation

Frank's counterpart in the Senate, Banking Committee Chairman Christopher Dodd, said he is working with colleagues on the panel to pass similar legislation.

``The passage of this bipartisan measure sends a clear signal to Americans -- and the White House -- that Congress is committed to helping people keep their homes and stabilize the markets,'' Dodd, a Connecticut Democrat, said yesterday in a statement.

The House yesterday also approved a bill that would create a $15 billion loan-and-grant program to help states buy and rehabilitate foreclosed homes. Democrats said the measure is necessary to keep neighborhood homes from falling in value and to prevent the blight and crime that vacant homes attract.

To contact the reporter on this story: Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: May 9, 2008 00:01 EDT