House Approves Controversial Housing Package

The U.S. House of Representatives on Thursday passed a controversial housing package that includes a Democratic-led proposal to authorize the Federal government insure up to $300 billion in troubled mortgages. The package, H.R. 3221, passed by a 266-154 vote that included support from some Republicans and includes numerous bills that have been debated on Capitol Hill recently.

House of Representatives Financial Services Committee Chairman Barney Frank (D-MA), who helped organize the controversial legislation, said earlier this week that the measures in the package represented a last stop ahead of potentially more “restrictive” legislation.

Characterizing a bill he proposed — H.R. 5830, the FHA Housing and Homeowner Retention Act, which was rolled into the housing package approved by the House Thursday — as a “cooperative approach” to solving the housing mess, Frank said strong-arming both lenders and servicers would become “politically irresistible” should servicers fail to push troubled borrowers the FHA’s way.

The bill would require lenders and investors to write off principal to no more than 85 percent of a property’s value, passing future risk of default onto the government via refinancing troubled borrowers into FHA-insured mortgages.

Congressional leaders have touted the plan as a way to help more than one million home owners; the Congressional Budget Office, in contrast, has estimated that the bill would aid roughly 500,000 and will cost $1.7 billion to taxpayers.

The full package includes two other measures that previously cleared the House, and are favored by Republicans: an FHA reform measure, as well as a proposal to create a new regulator for both Fannie Mae and Freddie Mac. Also included is a bill that seeks to limit servicer liability when modifying a loan, and a measure that introduces a refundable tax credit of up to $7,500 for first-time home buyers.

President Bush has threatened to veto the package, however, saying earlier this week that the proposal to expand FHA’s mortgage program represents a bailout of lenders and irresponsible homeowners.

Earlier Thursday, the House also passed a separate measure that would provide state and local governments with $15 billion to buy vacant and foreclosed property — also a bill that Bush has said he will veto, and strongly opposed by Republicans.

Thursday’s vote on the H.R. 5818, the Neighborhood Stabilization Act, passed on a 239-188 margin that split almost entirely along party lines.

The approval by House leaders puts the spotlight squarely onto Senate Democrats, who are also considering a similar housing package. Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-CT) last week postponed a key committee discussion and vote on a measure similar to the FHA expansion approved by the House.

Sources say that Dodd faces considerably stronger political headwinds in the Senate, relative to conditions in the House.