Internal GOP Battle Looms

Posted February 20, 2009 at 6:28pm

What to do about the nation’s housing crisis is becoming a family feud Republican leaders aren’t keen to talk about — or even acknowledge.

The heart of the debate on the right is whether government should intervene directly — and massively — to refinance mortgages and help prop up housing prices, or whether tax cuts and less costly market reforms should be the primary GOP prescription.

With the housing market continuing to deteriorate and various housing bills likely to come to the floor of both the House and Senate in the coming weeks and months, the crisis is a growing challenge to long-held GOP views that government should avoid meddling in the market.

Senate Republicans led by Minority Leader Mitch McConnell (Ky.) and Conference Chairman Lamar Alexander (Tenn.) have made a marked turn this year in favor of interventionist housing policies — urging a “housing first” policy during the stimulus debate, which more conservative House Republicans have yet to match.

As part of the stimulus fight, Senate Republicans proposed a massive new entitlement giving subsidized mortgages with interest rates as low as 4 percent to up to 40 million American homeowners. The plan would potentially cover trillions of dollars of real estate and cost taxpayers up to $300 billion in subsidies.

It’s the sort of big-government spending plan that House Republicans have been railing against — at least when they come from the lips of Democrats.

But House Republican leaders have avoided criticizing their more centrist Senate brethren, preferring to focus their fire on Democratic plans to bail out struggling homeowners instead, like Obama’s $275 billion proposal announced last week to rework distressed mortgages to prevent foreclosures.

House Minority Whip Eric Cantor (R-Va.) questioned whether Obama’s plan would reward irresponsible homeowners and lenders at the expense of the vast majority of Americans who have paid their mortgages on time.

Cantor specifically denied any rift with the Senate GOP on housing in a conference call with reporters earlier this month, noting a $7,500 House GOP-proposed tax credit for buying a house as a sign the two chambers were in sync. Senate Republicans led by Sen. Johnny Isakson (Ga.) succeeded in attaching a more robust $15,000 credit to the stimulus, although the final bill signed by Obama shrank the credit to $8,000.

“We are much in sync with what the Senate Republicans are talking about as far as the home prices and the situation with the real estate market,” Cantor said.

Cantor spokesman Brad Dayspring also preferred to accentuate the positive.

“House and Senate GOP agreement was plainly evident on the Isakson amendment, which was an expanded version of the housing credit in the House Republican economic recovery plan designed to encourage responsible buyers to enter the market and stabilize home prices,” Dayspring said.

But the far larger Senate GOP interest rate plan has come under sharp fire from some conservatives.

Rep. Scott Garrett (R-N.J.) said House Republicans will not support either the Obama plan or a subsidized 4 percent rate like Senate Republicans.

Garrett, a member of the Financial Services Committee, said that in most areas of the country, real estate prices are still too high.

Both plans “disregard the fact that the housing market pricing right now is still overinflated from its historical norms,” he said. “All we will be doing is propping up something beyond its natural level.”

And Garrett said a 4 percent mortgage entitlement would likely evolve into just another permanent spending program and destroy the private mortgage market to boot.

“You’re not going to be able to get rid of this program just like you’re not going to be able to get rid of any other program out there,” he said.

The leftward drift of Senate Republicans on housing has also sparked strong criticism at places like the conservative Heritage Foundation, where big government interventions are anathema.

“It should not be government policy to spend massive amounts of taxpayer money to subsidize those who do not need subsidies, provide homes for those who cannot afford to keep them, and in the process destroy the private mortgage finance system,” concluded a Heritage memo on the Senate GOP plan for 4 percent interest rates.

“It would be monstrous,” said David John, a Heritage economist and one of the authors of the memo.

John said he understands that politicians feel the need to do something dramatic, but that doesn’t mean the programs will work. “Everyone’s looking for a silver bullet and something they can tell constituents that they did,” John said.

A Senate GOP aide says that the different approaches Republicans in the two chambers are taking on housing is part of a developing “good cop, bad cop” dynamic whereby Senate Republicans can be more flexible while House Republicans, who are much more conservative in makeup because of their gerrymandered districts and recent election losses, have hewed more closely to core conservative beliefs and taken a more combative tone.

“That’s just the House-Senate dynamic in some ways,” the aide explained.

The divergent paths of House and Senate Republicans have been apparent over the past year.

A year ago, then-House Republican Conference Chairman Adam Putnam (Fla.) slammed a Democratic attempt to address the subprime housing mess as using a “sledgehammer on a gnat” and said the crisis was only affecting a few states. The Republican Conference’s March 2008 recess packet — essentially a talking points memo for Members to take home — didn’t even mention housing.

And while most House Republicans voted against the massive housing package last summer, most Senate Republicans, including McConnell and Alexander, voted for it, including a provision providing federal guarantees to refinance up to $300 billion in mortgages.

There is the potential for a similar result this year.

Although Democrats ultimately pushed aside the bulk of the Senate Republican housing proposals, Republicans and Democrats alike said a number of them could end up in the housing bill. Incorporating them could yield a big bipartisan Senate vote — and an equally stark partisan vote in the House.

John Stanton contributed to this report.