WASHINGTON -- President George W. Bush signed a housing-rescue bill into law Wednesday, completing Congress's ambitious legislative effort to head off rising foreclosures and stabilize jittery financial markets.

The law is wide-ranging and could have a big impact on home buyers, lenders and investment banks, and an even bigger effect on housing-finance giants Fannie Mae and Freddie Mac.

The Bush administration is counting on Fannie and Freddie to bolster the housing market by providing funds for the bulk of all home loans. But data released by Fannie on Wednesday underscored the risks both companies face from losses on mortgage defaults. Fannie said payments were 90 days or more overdue in May on 1.30% of the single-family home loans it owns or guarantees, up from 1.22% in April and 0.62% a year earlier.

Heavy losses in recent quarters have limited the companies' ability to buy mortgages. In a recent securities filing, Freddie said it expects its holdings of mortgages to grow about 10% this year. That implies that the holdings will end the year at about $793 billion, up slightly from $792 billion at the end of June. The holdings grew nearly 10% in the first half, but Freddie is likely to slow its purchases in coming months as it tries to build up its capital.

The new law creates a new agency, the Federal Housing Finance Agency, with increased powers over Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. It will fold in the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board, and will be led by James Lockhart, who has overseen Ofheo since 2006. Unlike Ofheo, which is part of the Department of Housing and Urban Development, the new agency is independent.

Another major provision of the law would allow the Federal Housing Administration to insure as much as $300 billion in new, refinanced mortgages. The program is supposed to be running by Oct. 1. Democrats have asked lenders to temporarily put off any foreclosures for borrowers who could qualify for the program.

The new regulator will have more control over Fannie Mae and Freddie Mac's capital levels, which Mr. Lockhart in the past has suggested were too low. The regulator also will have more scrutiny over the companies' portfolio levels. The law raises the conforming-loan limit in high-cost areas, which allows Fannie Mae and Freddie Mac to purchase expensive mortgages of as much as $625,000.

One of the law's most controversial elements would more closely tie Fannie Mae and Freddie Mac to the government, at least for the next 18 months. Fannie and Freddie were established by Congress decades ago, but their shares are publicly traded.

Emergency provisions added to the legislation several weeks ago are supposed to quell fears about the firms' ability to weather the housing turmoil. The law allows the Treasury Department to temporarily extend an undefined credit line to Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. Treasury will also be able to buy stock in either company, if necessary. The law also directs the Federal Reserve to consult with the new regulator about capital requirements for both firms.

The House of Representatives passed the law last week, and the Senate passed it Saturday.

--James R. Hagerty contributed to this article.

Write to Damian Paletta at damian.paletta@wsj.com

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