CQ TODAY PRINT EDITION
July 15, 2008 – 9:22 p.m.
Lawmakers Ease Up on Housing Package
By Benton Ives, CQ Staff
Lawmakers in both chambers tapped the brakes on legislation aimed at Fannie Mae and Freddie Mac and signaled that they are considering significant changes to the administration’s plan to bolster the mortgage giants.
House lawmakers Tuesday backed off earlier plans to move the proposal this week, saying consideration of a major housing package (
“There are other things that have been suggested by [Treasury Secretary Henry M. Paulson Jr. ] over the weekend, and we want to get those right and include that in the legislation,” said House Majority Leader Steny H. Hoyer , D-Md.
Democratic leaders did, however, reiterate that they want to clear the housing legislation soon.
The Bush administration has stressed a need for Congress to act quickly after markets abruptly lost confidence in Fannie and Freddie amid a housing slump and new concerns about the companies’ finances, which sent their share prices plummeting.
On Tuesday, key Senate lawmakers from both parties said they had significant questions about major portions of the Treasury-led plan that was announced over the weekend. “We’ve got to think this through,” said Banking Chairman Christopher J. Dodd , D-Conn., at a hearing with Paulson, Federal Reserve Chairman Ben S. Bernanke and Securities and Exchange Commission Chairman Christopher Cox.
Dodd said he wanted to make sure “we’re not going to do something we regret.”
Richard C. Shelby of Alabama, the top Republican on the Banking panel and a key to moving the proposal, echoed some of Dodd’s concerns, saying, “We need to try and get this right from a legislative perspective . . . [and] not just accept anything that comes.”
Late on July 13, the Bush administration offered an ambitious plan to shore up the troubled mortgage financiers. Under the plan — parts of which require congressional approval — the Treasury Department will increase an already-existing government line of credit to Fannie and Freddie and is asking Congress for the authority to buy an equity stake in the companies to keep them financially sound.
The plan also calls for including the Federal Reserve in a supervisory role over Fannie and Freddie, known as government-sponsored enterprises (GSEs). The broader housing package also would create a strong new regulator for the two GSEs, with the authority to set capital standards and limits on the companies’ portfolios.
While Paulson and President Bush both called for Congress to move quickly, top House Republicans pushed back, urging more time be taken to examine the plan.
“It would be irresponsible for Congress to provide the proposed new authority without doing due diligence on the mechanics of the Treasury proposal and its potential implications for taxpayers,” said House Minority Leader John A. Boehner , R-Ohio, and Minority Whip Roy Blunt , R-Mo., in a statement.
They called for hearings “to give taxpayers the answers and assurances they deserve,” and said the changes sought by Paulson “should be linked to a commitment to meaningful reform of the GSEs, and should not be coupled with a multi-billion dollar taxpayer-funded bailout bill that includes no reform or a multi-billion dollar permanent new government spending program.”
Lawmakers Ease Up on Housing Package
Lawmakers from both sides of the aisle remain generally supportive of moving the proposal quickly, though some GOP lawmakers have concerns about intervening so dramatically.
Sen. Jim Bunning , R-Ky., was the most vocal opponent. “I will use every power in my arsenal as a senator to stop any new powers going to the Fed,” said Bunning, a frequent critic of the Fed.
Buying Stock
Under the White House proposal, the authority to extend credit and buy stock in the company would expire at the end of 2009. But the plan places no cap on how large a stake could be purchased, or how sizable a line of credit could be offered.
Shelby indicated he had concerns about that language, worrying that it could put taxpayers at risk. Shelby said he couldn’t remember another instance where Congress “put an open ended blank check for somebody to fill in, including the administration.”
Paulson, principal author of the plan, maintained it was unlikely the Treasury would have to exercise its new powers, should Congress grant them. Instead, their existence could help calm shaken investors.
He also said leaving the credit line open-ended was key to calming market fears about Fannie and Freddie. If markets understand the government can wield an unlimited financial lever to help Fannie and Freddie, they will be less worried about the companies’ future, Paulson argued.
“By having something that is unspecified it will increase confidence and by increasing confidence it will greatly reduce the likelihood it will ever be used,” Paulson said.
Meanwhile, Dodd expressed concerns about installing the Fed in a “consultative” role with the new regulator for Fannie and Freddie. Dodd said he could understand sharing information, but “statutorily requiring it takes us to another level.”
Paulson has championed overhauling the nation’s financial regulation with a strong Fed as a kind of super-regulator. Lawmakers expressed concerns that inserting the Fed into GSE oversight so directly was a step in that direction with adequate consideration of Paulson’s overall plan.
Barney Frank , D-Mass., chairman of the House Financial Services Committee, said he planned on placing some restrictions on the White House plan. For example, if the government ended up purchasing stock in Fannie and Freddie, it would be “very preferred stock,” to ensure the government gets paid before other shareholders.
Although the White House proposal has taken the spotlight, the underlying housing measure includes other landmark provisions, including an overhaul of the Federal Housing Administration, an FHA-led program to help borrowers avoid foreclosure and a $14.5 billion package of tax breaks.
On Tuesday, Frank said a $3.9 billion package of grants for states to buy and rehabilitate foreclosed properties is back in play. Given a strongly worded White House veto threat over the provision, the House had been expected to drop the language.
Lawmakers Ease Up on Housing Package
Frank said it would be a tough political sell to include help for Fannie and Freddie in the package, while saying, “Oh, but we can’t afford to send $4 billion to the cities to buy foreclosed property.”
Moderate Democrats had objected to the grant money being unpaid for, but Frank said House tax writers had come up with an offset. A House Democratic aide said the offset would likely be a further delay in rules that give multinational corporations more flexibility in allocating their interest expenses.
Frank said he was willing to accept a $625,000 cap on Fannie’s and Freddie’s conforming loan limits in high-cost areas, which govern the sizes of mortgage the companies can buy. But Frank said he would tweak the formula so more homes could qualify for Fannie’s and Freddie’s programs.
Frank also said he would accept the Senate’s language that would prohibit risk-based pricing strategies for FHA loan products. In addition, Frank said the bill would not mandate the FHA to allow seller-assisted down payments, which the agency has long resisted.
Richard Rubin and Phil Mattingly contributed to this story.
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