Hank Paulson on Friday said that housing remained "the biggest risk" to the US economy, as new data showed construction of family homes dropping to the lowest level in 17 years. Speaking at a conference in Washington, the US Treasury secretary said that the correction in the housing market had "further to go", but that the US was "working through the excess inventory".The US administration has threatened to veto legislation passed in the House of Representatives that would expand the role of the Federal Housing Administration to allow up to guarantee up to $300bn (£153bn, €192bn) of mortgages at more affordable levels. The White House and many Republicans believe such a move would put taxpayers at risk in order to bail out speculators. While the plan being discussed in the Senate on mortgage relief is virtually identical to the House plan, it is likely to include a measure diverting money from a new affordable housing fund at Fannie Mae and Freddie Mac to pay for the refinanced mortgage plan, therefore circumventing the main White House objection.

The wave of misery caused by America's sub-prime mortgage crisis engulfed more homeowners in April as foreclosures leapt by 65% year-on-year, adding to pressure on the White House to provide relief for stricken borrowers. Banks filed foreclosure papers on 243,353 US properties last month according to RealtyTrac, an online marketplace for repossessed homes. The housing market meltdown has been a factor in forcing one Californian city, Vallejo, to file for bankruptcy. Saccacio said: "Property tax bases are eroding, putting municipal budgets in peril." In Washington, a Democrat-led initiative to provide aid for homeowners will go before the influential Senate banking committee next Thursday. The plan would permit struggling borrowers to refinance their mortgages with loans backed by the US government. It would allow the Federal Housing Administration to stand behind $300bn (£155bn) in mortgages, at an estimated cost to taxpayers of $2.7bn. It was overwhelmingly passed by the House of Representatives last week as 39 Republicans defied their party's leadership by supporting it. But President Bush has vowed to veto the measure on the grounds that it amounts to a "taxpayer-funded bailout for lenders and speculators".