$283 Billion? A Mere Bagatelle Among Friends

Posted May 5, 2008 at 6:26pm

What’s $283 billion between friends?

[IMGCAP(1)]That’s the number separating the House’s and the Senate’s housing bills. But with Republicans essentially taking a wait-and-see approach, it’s unclear whether the two chambers can bridge the gap and pass a bill to address the nation’s housing and foreclosure crisis.

What is clear is that House Democrats will reignite the debate this week when they take up their measure to allow the Federal Housing Administration to guarantee $300 billion in mortgages on the brink of foreclosure.

Though Senate Democrats have been trying to move a similar measure, so far they’re stuck with the $17 billion bill of modest housing measures that they passed last month. Designed to provide tax breaks for homebuilders and help localities buy up foreclosed properties, it was widely criticized as doing too little to affect the mortgage market meltdown.

But time may be running out for Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) and ranking member Richard Shelby (R-Ala.), who have purportedly been working to reach a compromise on their own $300 billion FHA measure, along with legislation to revamp mortgage giants Freddie Mac and Fannie Mae.

A markup scheduled for this week was scuttled to give Republicans more time to review the bills.

“This trying-to-work-it-out thing just isn’t working,” complained one senior Senate Democratic aide of the Senate Banking panel’s progress.

Indeed, Senate Democratic aides predicted that Senate Majority Leader Harry Reid (D-Nev.) will face a groundswell of pressure from rank-and-file Democrats to take another shot at housing legislation before the Memorial Day recess just three short weeks away, particularly since House Members will presumably have a much stronger measure on which to campaign.

Though the Senate is slated to take up both a supplemental war spending bill and a Defense Department authorization measure in the next few weeks, another senior Senate Democratic aide said that won’t be enough to take home to constituents during the weeklong break.

“The economic situation is only going to get worse,” said the aide, adding that Democrats need to ratchet up the pressure on Republicans in order to get the chamber moving. “This is an obvious policy fix that we Democrats are not going to let go of, and Republicans are going to be forced to come our way, and it’s a question of who blinks first,” the aide asserted.

Despite what appear to be good-faith efforts between Dodd and Shelby to reach an accord, Democrats say they have deep doubts about whether Republicans actually are willing to play ball on the bill.

“Republicans have made some conciliatory sounds, but it certainly seems like they’re setting up a complete stonewall,” said the aide.

But Republicans continue to indicate that they are skeptical of putting the federal government on the line for bad mortgages to the tune of $300 billion, and Shelby has suggested that the entire housing crisis needs to be studied more thoroughly before Congress acts.

“We’re facing one of the most significant economic events in decades,” Shelby said during an April 16 Banking hearing. “And I believe we have a responsibility to understand how we got there, who’s at fault and whether we can prevent it from ever happening again.”

Despite Democratic agitation for a broader bill, Republicans said they are content for the moment to see what the House passes and send the two bills to conference.

“We produced a bill — working with Democrats — that we believe is a decent product, and House Democratic leaders have not taken that bill up,” said one Senate GOP leadership aide. “So at this point, the ball is in their court.”

But Republicans might be in a tough spot politically, considering that the Congressional Budget Office estimates that House Financial Services Chairman Barney Frank’s (D-Mass.) FHA plan could prevent 500,000 foreclosures and cost a relatively small $2.7 billion.

The bill is being paired with a tax package and overhauls of FHA, Fannie Mae and Freddie Mac, and will likely have significant bipartisan support on the floor given that 10 Republicans voted for it in committee.

Frank, meanwhile, has warned the mortgage industry that if it doesn’t support something like his plan this year, it could be in for far more significant regulation next year.

“If after this we continue to get very little participation by servicers, I can guarantee you that the servicer industry will look very different a year from now than they do today,” Frank said last week.

“If after everything we do in this cooperative way falls short, then you are going to see legislation that puts some very real restrictions on the role of servicers and give many more rights to the borrowers,” Frank said.

A separate $15 billion package of loans and grants for the purchase of foreclosed properties, backed by Rep. Maxine Waters (D-Calif.) and supported by Frank, also will come to the floor, and is aimed at stabilizing neighborhoods. But the package, attacked as a bailout by Republicans, could face stiffer opposition.

House Republican leaders have repeatedly opposed what they consider to be taxpayer-paid bailouts, although many Republicans, particularly in hard-hit districts, are likely to back the packages on the floor.

“House Republicans believe we must reward responsible homeowners, and protect those who were truly victimized — which doesn’t include bailing out speculators, cheats or scam artists,” said Antonia Ferrier, spokeswoman for House Minority Whip Roy Blunt (R-Mo.).

She also took aim at the Frank proposal. “This bill perversely rewards those who borrowed more than they could afford — their monthly mortgage payments get reduced with the government footing the bill. How is that fair to the millions of Americans who worked hard and paid their mortgages on time? And who ends up holding the bag if all goes south? No surprise, the American taxpayer.”

But Frank spokesman Steve Adamske dismissed the Republican rhetoric, noting that Frank’s proposal is voluntary, would require that lenders take a significant write-down and that the government would get a piece of the equity.

“Nobody’s getting a free ride in this,” he said. “What this program actually does is to slow the decrease in housing values and to also slow the incredible increase in home foreclosures so the economy isn’t jolted.”

House Republicans, meanwhile, are expected to back a new $10,000 tax credit for homebuyers Tuesday along with a package of regulatory reforms.

But Adamske said tax credits for buying homes won’t prevent foreclosures. “That doesn’t seem like to me that it’s going to get to the principal problem here, which is the loss of homes by middle-class Americans,” he said.

Republican talking points obtained by Roll Call also suggested housing prices must fall further rather than be propped up by a new government program, an argument also made by Shelby.

“The correction in the housing market is a necessary reaction to a prolonged period of reckless lending and borrowing practices that helped take housing prices to levels that were simply unsustainable. For the market to stabilize, prices will need to return to levels that ordinary Americans can afford,” the talking points read.

But Adamske said Republican leaders who advocate letting the market work its will ignore the impact the foreclosure explosion has had on neighborhoods.

“To advocate that you want to throw middle-class families out on the street so you can cheer market forces at work — remember it was market forces that got us in to this.”