The CBO estimates that a Senate bill allowing the Federal Housing Administration to insure up to $300 billion in new subprime mortgages would help about 400,000 struggling homeowners out of the 2.2 million borrowers who are expected to face foreclosure proceedings in the next few years. The agency also said the measure, sponsored by Senate Banking Chairman Christopher Dodd and ranking member Richard Shelby, ultimately cost FHA $729 million over a 10-year period to help guarantee new mortgages for those at risk of default. While the bill's ceiling is $300 billion in new guarantees, CBO estimated that FHA would actually provide $68 billion in new loan commitments. The Senate bill has a narrower eligibility than a House version, sponsored by Financial Services Chairman Barney Frank, which would cost $1.7 billion and help an estimated 500,000 borrowers. The FHA refinancing program is part of a broader housing package that both sides are attempting to reach agreement on before July. The overall bill also is expected to revamp oversight at government-sponsored enterprises Fannie Mae and Freddie Mac, overhaul the FHA's mortgage insurance program, and provide some housing-specific tax breaks.
The Senate housing bill would siphon off 4.2 basis points of Fannie's and Freddie's new business that would ultimately go into an affordable housing trust fund. CBO said such assessments would total about $9 billion over a 10-year period, under a forecast that assumes the nation's mortgage debt will grow at an average of 5 percent annually. But the agency also noted that such assessments also would lower the GSE's taxable income by $2.25 billion over the next decade. Given that and other adjustments, the Senate bill would bring in $6.8 billion from the GSEs over the next 10 years to the federal government. Under the Senate bill, that would result in about $2 billion toward the housing trust fund over the next five years. By comparison, the House bill -- which would siphon off 1.2 basis points of both GSE portfolios -- is estimated to bring $2.24 billion into its housing trust fund over the same time period.
A major obstacle in negotiations will be the housing trust fund. The Senate bill would allocate all of the trust-fund monies to pay for the FHA refinancing plan in 2009, 50 percent in 2010 and 25 percent for 2011. The House bill did not have a specific offset for the FHA refinancing plan. Instead, the House bill would allocate 25 percent of the trust-fund monies to pay off bonds issued by the Resolution Trust Corp. in the aftermath of the savings-and-loan crisis. The House measure would allocate the remaining 75 percent of its funds during its first year of operation -- an estimated $520 million for FY08 -- to Louisiana and Mississippi to support housing in areas affected by Hurricane Katrina. Frank is lobbying aggressively to maintain some of the trust-fund monies for Gulf Coast rebuilding in any final compromise.
This article appears in the June 14, 2008, edition of National Journal Daily PM Update.