WASHINGTON - The House on Thursday passed a massive homeowner rescue plan to provide cheaper, government-backed mortgages to half a million debt-ridden borrowers and bolster an economy crippled by the housing crisis.

Defying veto threats from President Bush, the House approved the measure by a vote of 266-154, with 39 Republicans -- mostly from areas suffering worst from housing woes -- supporting it.

It would let the Federal Housing Administration take on up to $300 billion in new mortgages so that financially strapped borrowers facing foreclosure could refinance.

The plan by Rep. Barney Frank, D-Mass., is the centerpiece of a broader package of bills approved Thursday that Democrats say will prevent more foreclosures and help homeowners and communities deal with the fallout from the mortgage meltdown.

"We are in a recession, and the major cause of that is the subprime crisis," said Frank, the House Financial Services Committee chairman. "Diminishing the number of foreclosures is in the interest not simply of those who will avoid foreclosure, but people in their neighborhood, the cities in which they are located, and the whole economy."

The measure is targeted at homeowners facing default, including many who owe more than their houses are worth.

For instance, a homeowner who owes $290,000 on a house now worth $225,000 could refinance into an FHA-backed loan if the mortgage holder was willing to take a loss of about 36 percent. The borrower's monthly mortgage payments would fall from $2,200 to about $1,200.

Loan holders would have an incentive to participate, proponents think, since the alternative would be costly foreclosures, which can involve losses of 50 percent or more.

Borrowers would have to show they could afford to make payments on the new loans. They would have to share with FHA at least half of their proceeds if they profited from selling or refinancing again.

Supporters hope the package -- which awaits action in the Senate -- will form the basis of a broad bipartisan housing compromise that could satisfy both parties' keen appetite for delivering election-year aid.

But Bush's veto warnings, bolstered by staunch GOP opposition, are clouding its prospects.

Republicans argued the package rewards lenders and irresponsible borrowers at the expense of homeowners and renters who made more prudent choices.

The plan is projected to cost $2.7 billion over the next five years.