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Looking back, the housing industry is totally Scrooged

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Dodd, Shelby Roll Out Senate Housing Bill

After working behind the scenes to negotiate on differences with House Financial Services Committee chairman Barney Frank (D-MA), Senators Chris Dodd (D-CT) and Richard Shelby (R-AL) on Wednesday rolled out a housing proposal that could be put to the Senate floor for a final vote as early as this week. "Americans are looking to Congress to deliver solutions to the housing crisis, which has forced millions of homeowners to file for foreclosure, reduced home values for millions more, crippled the mortgage markets, and significantly weakened the American economy," said Dodd. The comprehensive housing legislation contains provisions from a Dodd-Shelby bill that was approved by the Senate Committee on Banking, Housing and Urban Affairs on May 20, as well as measures from the Foreclosure Prevention Act, which passed the Senate in April. The Senate proposal would create a $300 billion initiative within the Federal Housing Administration (FHA) to prevent foreclosures for hundreds of thousands of families, known as the HOPE for Homeowners Act; the cost of the program would be covered by contributions to an affordable housing fund by both Fannie Mae (FNM) and Freddie Mac (FRE). The Congressional Budget Office has estimated that the program will cost the GSEs as much as $9 billion; using affordable housing funds to pay for the $300 billion expansion of FHA lending for troubled homeowners represents a compromise from a similar bill that has already passed in the House of Representatives. Earlier, Shelby and other key Republicans had refused to support the Democrats' housing proposals -- especially the proposed $300 billion FHA expansion initiative -- on the grounds that the costs would be borne directly by taxpayers. "I am pleased that we included significant protections for the American taxpayer through meaningful GSE reform, and by ensuring that taxpayer dollars will not be used to fund the HOPE for Homeowners program," said Shelby. Approval from key Senators notwithstanding, a large number of conservative organizations came out firing Wednesday against the use of GSE-funded dollars to fund the FHA expansion program. "The Dodd plan creates a new housing trust fund that will collect more than $530 million a year through a new levy on Fannie Mae and Freddie Mac," groups including the American Conservative Union, Americans for Tax Reform, Citizens Against Government Waste, Club for Growth, Competitive Enterprise Institute, and FreedomWorks wrote in an open letter to Congressional representatives this week. "The trust fund in turn makes these funds available to politically active community groups like ACORN outside the normal appropriations oversight." Beyond the FHA expansion provisions, the bill also contains provisions that would establish a new regulator for the GSEs, and allocate nearly $4 billion in supplemental Community Development Block Grant Funds to be used to buy vacant and foreclosed properties in hard-hit neighborhoods. It also contains provisions for FHA modernization that the industry has long pushed for, as well as $150 million in additional funding for housing counseling. Where the details are, the sticking points are There are, of course, key sticking points in the legislation. According to various published reports, Barney Frank has said that while the Senate proposal is a step in the right direction, he doesn't expect the House will approve the Senate's version as it stands right now. Which, of course, means that getting bill on the President's desk before Congress breaks on July 4 could yet be a very large challenge. "This thing could collapse and if it does, you may be talking about ... waiting until next year," Dodd said in a press conference Wednesday. Chief among the sticking points between legislators are provisions in GSE reform that would set conforming limits permanently higher in certain high-cost areas. Current provisions for so-called "jumbo conforming" loans underwritten by Fannie Mae and Freddie Mac set the maximum limit at $729,500 temporarily through the end of this year. Both the House and Senate proposals seek to make loan limit increases permanent, but diverge on the amount of the loan limit ceiling and what each GSE can do with the jumbo conforming loans it acquires; Frank has pushed to make permanent the current $729,500 ceiling, while also allowing the GSEs to hold jumbo conforming loans in portfolio (both are currently required to securitize and sell off any such loans acquired). In contrast, the Senate proposal sets the maximum limit at $625,000; in a concession to Frank, the Dodd-Shelby proposal was modified from its earlier form to allow the GSEs to portfolio such higher-balance loans, as well. There is also some discussion of delaying the process of naming a new GSE regulator by six months, allowing the next administration to name the new regulator and associated staff (given that House Speaker Nancy Pelosi (D-CA) is the one pushing for the delayed effective date, according to an outline, it's clear that Democrats expect to capture the White House in November). Disclosure: The author held no positions in any of the publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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