UPDATE 1-White House leaves door open on housing rescue

(Adds FHA Secure announcement)

By Kevin Drawbaugh

WASHINGTON, May 9 (Reuters) - The White House on Friday set out terms for a possible deal on a housing market rescue plan, as a sweeping package backed by the House of Representatives was on its way to an uncertain greeting in the Senate.

The House approved a package of bills on Thursday that would let the Federal Housing Administration offer $300 billion in new guarantees to refinance the mortgages of an estimated 500,000 distressed borrowers.

The Bush administration, which has threatened to veto the legislation, said taxpayers should not have to pay for the new lending program, which the Congressional Budget Office estimates would cost taxpayers up to $2.7 billion.

"The FHA should be self-financing and not provide a subsidy from taxpayers. Taxpayers shouldn't be taking on the risk of foreclosure, and that means that underwriting standards should be sound," said White House spokesman Tony Fratto.

The House package also proposed new tax credits for homeowners and billions of dollars in loans and grants intended to help stabilize the slumping housing market.

The Senate Banking Committee had been expected to take up housing legislation on Tuesday. An aide said that was no longer scheduled, but the committee was aiming for action next week.

"It's not clear what the Senate intends to do on housing," Fratto said.  Continued...