July 22, 2008 – 9:44 p.m.
The House set the stage for floor consideration Wednesday of a comprehensive housing package, including a lifeline for Fannie Mae and Freddie Mac that would not include a dollar cap but, against White House wishes, would be subject to the federal debt limit.
Although a final deal hasn’t been worked out with the Senate, lawmakers appear likely to move forward with several modifications to a Bush administration plan to backstop the mortgage giants if their financial situation becomes more dire. The Congressional Budget Office (CBO) said the plan could cost the federal government $25 billion over the next two fiscal years, though it added that chances are “probably better than 50 percent” that a bailout won’t be necessary.
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In an effort to shore up Fannie and Freddie — which have seen their share prices plunge in recent weeks — the Bush administration asked for broad new authority for the Treasury Department to offer credit and buy stock in the two companies through the end of 2009 if such intervention is needed to stabilize them.
On Tuesday, House Financial Services Chairman
Frank also said the government will have “total control” over the compensation packages for Fannie and Freddie executives, which some critics say are too high. Although the legislation will not include a “mandate” for providing preferred-shareholder status for any government equity stake in the two companies, which would ensure a priority return on a federal investment, that will be an option in the “secretary’s arsenal,” Frank added.
The House package would place the Federal Reserve in a “consultative” role with the new regulator for Fannie and Freddie. But that provision will expire at the end of 2009 under the House bill, while the administration proposal would not have provided an expiration for the Fed’s role.
The cap on the size of mortgages Fannie and Freddie can buy and package as securities, known as the conforming loan limit, would be set at $625,000 in certain high-cost areas, with additional language aimed at allowing more homes to qualify for the programs.
Defying a White House veto threat, the legislation includes a $3.9 billion local grant program for the purchase of foreclosed homes.
“Nobody in America will agree with everything in this bill,” Frank said. He has been working to hammer out a deal with Senate Banking Chairman
In a joint statement late Tuesday, Dodd and Shelby said that they “have been engaged in extensive and largely fruitful discussions with our counterparts in the House of Representatives, as well as Administration officials. We remain optimistic about the prospects for this legislation.”
Still, opponents seized on the CBO analysis of the Bush plan as a vindication of their concerns that taxpayers could end up shouldering new costs.
“By bailing out Fannie and Freddie as proposed, Congress would put taxpayers on the hook for billions of dollars worth of risk,” said Rep.
The report also provided budget hawks a possible opening to raise the issue of pay-as-you-go budget rules, which require new spending or tax cuts to be offset. But little was heard on that issue Tuesday.
Some lawmakers dismissed the significance of the CBO estimate, which was predicated on numerous complex scenarios involving the housing market.
Indeed, CBO concluded: “If the proposal is enacted, private markets might be sufficiently reassured to provide the GSEs [government-sponsored enterprises] with adequate capital to continue operations without any infusion of funds from the Treasury.”
However, CBO also cautioned that “that scenario is far from the only possible result” and said “many analysts and traders believe that there is a significant likelihood that conditions in the housing and financial markets could deteriorate more than already reflected on the GSEs’ balance sheets, and such continuing problems would increase the probability that this new authority would have to be used.”
Frank said a worst-case cost scenario laid out by the CBO — a 5 percent chance Fannie and Freddie could lose $100 billion in the future — would likely not be an issue for the overall measure.
“Before you reach anything like that, they’d be put into receivership,” he said. “I mean, nobody’s going to throw good money after bad.”
The bill headed for House floor action includes several landmark pieces of legislation: an overhaul of the Federal Housing Administration, an FHA-led program to help borrowers refinance out of mortgages they can’t afford and the creation of a new regulator for Fannie and Freddie. It has already passed both chambers in differing forms.
The administration proposal does not include an upper limit on the credit line or the government’s power to purchase equity stakes in Fannie and Freddie. But lawmakers are likely to effectively limit that authority by placing it under the federal debt limit, currently set at $9.8 trillion. The housing package unveiled Tuesday night includes an $800 billion increase in the limit for all government obligations. The government’s debt that counts against that limit is now about $9.5 trillion.
House lawmakers made some changes to a package of housing-focused tax breaks included in the measure. The latest House version totals about $15.1 billion, an increase over the Senate’s $14.5 billion package.
The House bill includes a tax credit for first-time homebuyers that is equivalent to an interest-free loan for 10 percent of the home’s cost, up to $7,500. The Senate version of the measure had capped that credit at $8,000. The House version would also extend the end date for the homebuyer credit to July 1, 2009, from April 1, 2009, in the Senate version.
It also includes some $18.5 billion in offsets, which would cover the cost of the housing tax breaks as well as most of the cost of the $3.9 billion in grant funding for states and localities to buy and rehabilitate foreclosed properties.
David Clarke contributed to this story.