Senate Expected to Pass Housing Package Today, But Hurdles Remain
A massive and controversial housing package moving through Congress passed a final procedural hurdle Thursday, with the Senate voting 84-12 to invoke cloture on the last portion of the bill; the package (HR 3221) appears set to pass a final Senate vote Friday, although a final bill will require negotiation between House and Senate leaders. President Bush has also threatened to veto the bill in its current form, as well. An effort by Sen. John Ensign (R-NV) to hold up the package over an $8.2 billion non-housing-related amendment tied to renewable energy tax cuts came up short in Thursday's final procedural vote, as Republican and Democratic Senators repeatedly voted to move forward without his proposed amendment. The bill would establish a new regulator for troubled government-sponsored enterprises Fannie Mae (FNM) and Freddie Mac (FRE), as well as allowing the FHA to endorse up to $300 billion in refinancing activity for troubled borrowers; it would also allocate nearly $4 billion in funding to allow local governments to purchase vacant and abandoned properties. Sources told HW Friday morning that major hurdles remain, as the differences between House and Senate versions of the bill have yet to be ironed out; a Senate vote today would volley the legislation back into the lap of the House of Representatives and House Financial Services Chairman Barney Frank (D-MA), who has said he believes House members can reach an agreement with the Senate over key differences within a week's time. Behind the scenes, both Frank and Senate Banking Chairman Christopher J. Dodd (D-CT) have been negotiating on the package's key provisions, in an effort to prevent a back-and-forth between the two chambers of Congress. House leaders want to delay the start date of a new GSE regulator by six months after enactment of the legislation, a move that Senate Republicans and Democrats oppose on the idea that a stronger GSE regulator would help calm equity and debt markets, which have roiled in recent days over the prospect that both Fannie and Freddie may be insolvent or facing a government-led bailout. Key House members -- particularly House Speaker Nancy Pelosi, a California Democrat -- want to see the conforming loan limit set permanently at $729,500 for high-cost markets; the Senate version of the bill sets that level at $625,000. But those are issues that are likely to be easily resolved, sources said. Much more difficult will be a proposed provision in the Senate that would add $3.9 billion in Community Development Block Grant funding that would allow local governments to purchase foreclosed and abandoned real estate for use as affordable housing. The House version of the package contains no such provision, and so-called "Blue Dog" Democrats -- a name given to a group of conservative Democrats in the House -- are strongly opposed to the measure. President Bush, too, has said he will veto any housing package sent to him with the CDBG provisions in it. Republicans see the provisions as a incentive for lenders to neglect properties in hardest-hit neighborhoods. Also at issue is so-called seller-funded down payment assistance; the House version of the bill allows the controversial practice to continue, while the Senate wants to ban the practice altogether. Administration officials, including HUD chief Steve Preston as well as FHA commissioner Brian Montgomery, have said in recent days that the DAP program risk placing the self-funded FHA program into insolvency. "The supporters of down payment assistance are heavily entrenched in the House, and their lobbyists have fought this sort of battle before successfully," said one source on Capitol Hill that asked not to be named. "The DAP provisions will probably be the single largest negotiating point in the days ahead over this bill." So, too, will provisions that either ban or allow for risk-based pricing at the FHA; the House version allows for it, while the Senate package prohibits it. Our sources said Friday that the President would be likely to veto the package should it seek to ban the use risk-based pricing, and administration officials have painted RPB as critical to the FHA's forward solvency, akin to the argument used around DAP. Outside of the Congressional package, the FHA is already set to enact a risk-based pricing structure for a planned expansion of the adminstration's FHASecure program on July 14. Also at potential issue, our sources said, was the Senate's reliance on Fannie and Freddie to backstop the expansion of the FHA's mortgage program; the Senate package forces both GSEs to contribute to an affordable housing fund that is used to backstop the $300 billion FHA expansion provisions. While the Senate provisions were added in to appease Republican concern that the housing package would place the responsibility for losses onto taxpayers, given the troubles now facing both GSEs, some House Republicans are said to be wondering if the bill will now put undue stress on the already-troubled housing giants. "There's an emerging feeling that this bill will end up in the lap of taxpayers," said one HW source, "but most don't know that the bill can be stopped at this point. Nobody really foresaw the troubled the GSEs are now in when the provisions were first negotiated and added into the package." Of course, there are some who saw the problems coming. But that's for a separate story. Editor's note: various wire services contributed to this report. Disclosure: The author held no position in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.