The path to completion of new US housing legislation experienced its latest twist on Thursday when the White House threatened to veto a Senate version of the bill that had won the support of many Republicans.

The White House said it approved of certain provisions, such as a plan to create a new, stricter regulator for Fannie Mae and Freddie Mac, the government-sponsored mortgage companies.

But it was opposed to other elements such as a $4bn allowance for local governments to buy foreclosed properties and the diversion of funds from Fannie Mae and Freddie Mac to pay for up to $300bn in guarantees for mortgages refinanced to reflect lower home values.

The opposition of the Bush administration could serve as a negotiating tactic as the final details of the legislation are worked out between the House and the Senate in coming weeks.

But it came as a surprise, given that the bill had advanced through the Senate banking committee with a bipartisan 19-2 vote and the backing of Richard Shelby, the panel’s top Republican.

The White House veto threat came just before senators began debating the legislation on the floor, with a final vote expected next week. Chris Dodd, the Democratic chairman of the banking committee, touted the package as a way to deal with the “heart” of the US economic downturn.

But his efforts to shepherd the housing bill through the Senate have been overshadowed by revelations that he received preferential rates from Countrywide Financial in 2003 as a member of the mortgage lender’s VIP programme.

On Thursday Jim Bunning and Jim DeMint, two Republican senators, demanded that the legislation be sent back to the banking committee so legislators could better examine what benefits would incur to mortgage lenders such as Countrywide. The Senate ethics committee is already conducting a preliminary inquiry into the matter.

John Boehner, the Republican leader in the House, added that his body should also look into the matter: “These are serious allegations and to think that we’re going to move a housing bill with these questions looming I think is irresponsible.”

Mr Dodd has admitted knowing he had been made a member of the VIP programme but believed it was out of “courtesy” and denied knowing it would result in better deals on mortgages.

Barney Frank, the Democrat from Massachusetts who has led the discussions on the housing bill in the House, yesterday came to the defence of Mr Dodd.

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