As they race toward clearing a housing stimulus measure, top Democrats are attempting to create the same environment that led to passage of the economic stimulus package.
Spurred by a downturn in the housing market, Democrats are bidding high with hopes that, by placing some long-sought Bush administration priorities into the final mix, political momentum will surmount any opposition, especially from Senate Banking ranking member Richard Shelby. Call it the “Everything-But-the-Kitchen-Sink” theory.
“We’re now in a recession that threatens to linger longer than we thought,” House Financial Services Chairman Barney Frank said. “In the current situation, there are strong economic and political [currents] in trying to get people to do something constructive. Even if people don’t like everything in the package, they may be more inclined to accept it.”
The Senate began the latest dance when it passed its housing stimulus bill April 10, which would provide $4 billion for cities to purchase and rehabilitate foreclosed properties and about $13 billion in specific tax breaks to spur additional home buying and calm the housing industry.
Senate Majority Leader Reid and Minority Leader McConnell cut a deal to move the package, fearing a worsening economy could trigger blame of both sides before the parties head into election season — a risk neither one wanted to take.
The House is assembling its broader package to be on the floor the week of May 5.
That week, Senate Banking Chairman Christopher Dodd will hold a markup on his bill that would allow the Federal Housing Administration to refinance up to $400 billion in troubled mortgages, as well as long-stalled legislation to revamp oversight at government-sponsored enterprises Fannie Mae and Freddie Mac.
Dodd said he figures that after years of wrangling, it is do-or-die time for the GSE bill, which Treasury Secretary Paulson desperately wants to get done before his tenure ends.
“You only get one bite at this,” Dodd said.
Dodd will first have to either appease or get around Shelby, who has been the main obstacle in moving the GSE bill, contending that the mortgage giants need a strong regulator and tight portfolio caps in the wake of accounting scandals at both firms.
The House has passed its GSE bill. Shelby held up final conference negotiations on a bill that would revamp the FHA’s mortgage insurance program, arguing for lower loan limits in the program than what Frank wants.
Shelby said he does not know if he will be able to come to an agreement on the GSE bill, but did stress an important issue for him will be boosting the capital standards at both firms.
The issue comes into play after the GSE regulator lowered the capital surplus the two are required to hold above their statutory minimums, freeing them up to pump about $200 billion into the mortgage market.
“I don’t know what will happen,” Shelby said. “We’re just interested in a strong regulator, with substance and that will address some of the problems such as lack of capital, [and] the portfolio.”
But Shelby is keeping in mind what happened earlier this year during debate on the economic stimulus package, when, as a part of an overall horse-trading on the package, Frank struck a deal with Paulson to boost GSE and FHA loan limits up to almost $730,000.
Shelby accused Paulson of personally misleading his stance during negotiations by telling the senator he would not boost the limits. Shelby was undercut after House GOP leaders signed off on the package, sealing the deal toward passage.
“He’s got to get something for it. He understands better than you and me where the political winds are blowing, so he is going to position himself to get something, even if at the end of the day he can still blow up the deal,” a lobbyist said.
Dodd remains optimistic.
“I always begin with the assumption that Richard wants to do something. That’s a very different problem that we face with certain other members that don’t want to do anything,” Dodd said.
The administration has been encouraging movement on the bill, but has sent conflicting signals on what it cannot accept, trying to curtail Democratic ambitions.
It wants passage of the GSE and FHA overhaul bills to shore up the housing market and provide some major legislative accomplishments under a Democratic Congress that has given Bush few victories.
In addition, Paulson has made personal outreach to Frank and Dodd a priority and has built up trust for a deal to be done.
But just before the Senate was about to pass the housing stimulus package, White House Press Secretary Dana Perino said the administration opposed it. Two days later, Senate Majority Leader Reid said Bush told him that he was not threatening a veto of the measure.
On Thursday, acting HUD Secretary Roy Bernardi said in a letter that the Bush administration strongly opposes Frank’s bill that would expand the ability of FHA to refinance troubled subprime mortgages, a companion measure to the Dodd bill.
Bernardi specifically criticized a provision that would apply to borrowers with a higher debt-to-income ratio than FHA allows.
But Frank said he was later informed by Treasury Department staff that it was not an explicit veto threat.
A final deal could easily involve a package containing an overhaul of FHA mortgage insurance program and oversight of GSEs, targeted tax breaks, and new ability for FHA to refinance at-risk subprime loans, Frank said. “They are mutually reinforcing,” he said.
Frank noted that additional funding to states and cities to buy and rehabilitate foreclosed homes might be tackled elsewhere, perhaps in the war supplemental appropriations bill.
Frank wants to reach a deal before the Memorial Day recess, though Dodd said such a time frame might be too optimistic if GSE negotiations are involved.
This article appears in the April 26, 2008 edition of NJ Daily.