Bush Issues Veto Threat on FHA Expansion Bill

A hotly-contested bill at the center of a proposed housing aid package, scheduled to begin debate in the House of Representatives on Wednesday, won’t get the support of President Bush, the White House said late Tuesday. The president issued a clear a veto threat to legislation proposed by House Financial Services Committee Chairman Barney Frank (D-MA) that would seek to significantly expand the scope of insured mortgages offered via the Federal Housing Administration.

“I will veto the bill that’s moving through the House today if it makes it to my desk,” President Bush said Tuesday, “and I urge members on both sides of the aisle to focus on a good piece of legislation that is being sponsored by Republican members.”

Frank’s bill, H.R. 5830, the FHA Housing and Homeowner Retention Act, would allow the government to guarantee up to $300 billion in refinancing activity tied to distressed mortgages over the next two years. The Massachusetts Democrat has said earlier this week at a Mortgage Bankers Association conference that he expected the legislation to move through Congress to the President’s desk by June.

“We are committed to a good housing bill that will help folks stay in their house, as opposed to a housing bill that will reward speculators and lenders,” Bush said. The administration has said it prefers competing proposals under consideration by Congressional leaders to modernize the FHA and reform regulation of Fannie Mae and Freddie Mac, as well as a proposal that would allow states to issue tax-exempt bonds for refinancing subprime mortgages.

These are complicated times politically, as Republican opposition to the housing measures being pushed by Congressional Democrats has been anything but united thus far.

Treasury secretary Henry Paulson signaled last week that he supported much of the bill, and remarks by Federal Reserve chairman Ben Bernanke on Monday evening implicitly backed Frank’s proposal as well. HW’s sources informed us also that Republican House and Senate members from hard-hit states, including California and others, may be willing to back Frank’s proposal out of a sense of desperation over the effect of housing in the markets they represent.

House Democrats Tuesday unveiled broad housing package — scheduled to begin debate today on the House floor — that includes some of the proposals backed by the administration, in an effort to secure passage for Frank’s more controversial measure. A similar measure has been proposed in the Senate by Banking, Housing and Urban Affairs Chairman Chris Dodd (D-CT), although Dodd tabled a scheduled committee debate late last week.

Federal Housing Commissioner Brian Montgomery told attendees at a Mortgage Bankers Association meeting in Boston on Tuesday that the Barney/Dodd plan to expand FHA insurance was akin to “throwing the barn doors open” and asking taxpayers to shoulder the bail-out of troubled borrowers. Montgomery, along with other administration officials, have argued that existing programs already in place — such as FHASecure — can be successfully augmented with less risk to taxpayers.

Frank has said that the current housing package taking shape in Congress represents the industry’s “last chance” to solve the mortgage crisis on a voluntary basis. Monday, Frank said that if servicers did not adopt the measures — and in particular, refinance troubled borrowers into the FHA loans his bill proposes — that “much tougher, more intrusive regulation will be on the way.”

The bill, however, faces an uncertain future at this point.

“This is going to be a dog fight,” said one source, a lobbyist that asked not to be identified by name. “Killing this bill may be too high a price to pay, with elections looming.”