CQ TODAY PRINT EDITION
– BANKING & FINANCIAL SERVICES
July 21, 2008 – 7:26 p.m.
Bush Reaffirms Veto Threat on Housing Bill If It Retains Locality Grants
By Benton Ives, CQ Staff
The White House reaffirmed a veto threat Monday against a huge housing package moving through Congress, singling out grant funds for buying and rehabilitating foreclosed homes as particularly problematic.
The grants, favored by many Democrats, re-emerged as a potential sticking point after the Bush administration asked Congress to prepare a lifeline for Fannie Mae and Freddie Mac in case the federal government had to step in and shore up the finances of the mortgage giants.
Before that, lawmakers had appeared ready to drop the grant program to eliminate one hurdle to getting the housing aid package signed into law.
The House is expected to take up the housing package Wednesday.
A Senate-passed version of the package (
The White House has long opposed those grants, arguing that the money would bail out lenders and do little to blunt the current housing downturn.
“We have a veto threat on the bill — that provision is one of the major concerns with the bill,” White House spokesman Tony Fratto said.
Still, many lawmakers have said they doubt the president would follow through on that threat, given the ongoing housing slowdown and the inclusion of numerous White House priorities in the housing package.
Bill Includes Mix of Provisions
The bill includes several landmark pieces of legislation: an overhaul of the Federal Housing Administration, an FHA-led program to help borrowers refinance out of mortgages they can’t afford and the creation of a regulator for Fannie and Freddie.
Congress is also expected to include a package of new powers the administration could use to rescue Fannie and Freddie if their financial stability is threatened.
Share prices for the two companies have been battered in recent weeks, as Wall Street investors fretted about their stability in the current real estate downturn. Worried that a collapse of either mortgage financier could cause a worldwide crisis in debt markets, Treasury Secretary Henry M. Paulson Jr. spearheaded the lifeline plan for Fannie and Freddie.
Paulson wants to give the government the power to open new credit lines and buy equity in the companies if their financial soundness is threatened.
Bush Reaffirms Veto Threat on Housing Bill If It Retains Locality Grants
Congress would need to approve those new authorities, and Democratic lawmakers have been reluctant to offer help to Fannie and Freddie while dropping funds for cities and states to buy foreclosed property.
“Let me get this straight. The president is asking us to do something quite significant on the housing crisis, and he is going to prevent local governments from buying up these properties?’’ House Speaker Nancy Pelosi , D-Calif., said last week.
But the administration continued to urge lawmakers to drop the provision.
“Members should not be using the fact that we have urgent legislation to jam this bill with provisions that would otherwise not get support,” Fratto said Monday.
Debt Details
Lawmakers are still putting finishing touches on the package, including limits on the new Treasury authority to back Fannie and Freddie.
The proposal does not include an upper limit on the credit line or the government’s power to purchase equity stakes in the companies, though the authority would expire at the end of 2009.
Lawmakers may try to limit that authority by placing it under the $9.8 trillion debt limit, which would effectively cap the amount of money the government could extend to Fannie and Freddie. The government’s current debt is about $9.4 trillion.
Lawmakers are also expected to make changes to the proposal that would ensure that the government gets paid back for any equity investment in the company.
Senate Banking Chairman Christopher J. Dodd , D-Conn., has also expressed concerns about language in the proposal that would place the Federal Reserve in a “consultative” role with the new regulator for Fannie and Freddie. Dodd is worried the Fed could end up usurping some of the regulator’s authority.
Lawmakers may also have to contend with the cost of the housing package. Given the companies’ $1.5 trillion in outstanding debt, any government intervention on their behalf could be costly.
But Paulson argues that setting up the lifeline as a backstop would calm markets and make an actual intervention very unlikely.
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