The House of Representatives is expected to vote as early as today on a sweeping housing bill that would expand FHA loan guarantee programs by $300 billion and grant the Bush administration’s request for authority to provide a capital backstop for mortgage financers Fannie Mae and Freddie Mac.
The Congressional Budget Office estimates that while there’s only a 50-50 chance that Fannie and Freddie will require a government bailout, the price tag could be $25 billion if they do (see story). Sen. Richard Shelby, R-Ala., called the CBO estimate "pretty good news," Reuters reported.
In a speech Tuesday, Treasury Secretary Henry Paulson said that Fannie and Freddie’s ability to continue guaranteeing and purchasing mortgages "is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in our financial markets and financial institutions."
Paulson said that although he "would rather not be in the position of asking for extraordinary authorities to support" the government-sponsored entities, he was "playing the hand that I have been dealt."
The Bush administration also wants Congress to create a new independent regulator of Fannie and Freddie, and give the Federal Reserve a role in setting capital requirements and other standards.
"As this new regulator implements its mandate, we expect and welcome a larger examination of the structural issues inherent in these GSEs, so that we don’t find ourselves in this same position again in the future," Paulson said. Based on consultations with members of Congress, Paulson said he expected action on the legislation this week.
Both the House and Senate have passed different versions of the bill. The House is considering amendments to HR 3221, the Foreclosure Prevention Act of 2008, passed by the Senate July 11 (see story).
Differences between the House and Senate bills include where to set upper loan limits for Fannie, Freddie and the Federal Housing Administration, and whether to tap Fannie and Freddie to pay for the expected costs of expanding FHA loan guarantee programs.
The House had previously adopted legislation that would continue the temporary limit of $729,750 for loans purchased or guaranteed by Fannie Mae and Freddie Mac. The Senate would set an upper limit of $625,000 for Fannie, Freddie and FHA loan guarantee programs.
The Senate would cover nearly $1 billion in expected costs associated with a $300 billion expansion of FHA loan guarantee programs by assessing new fees on loans guaranteed by Fannie and Freddie, while House lawmakers want those funds to be used for affordable housing.
Proposals to "modernize" FHA loan guarantee programs by allowing risk-based pricing and banning seller-funded down-payment assistance have also been controversial. Rep. Barney Frank, D-Mass., has said the House is prepared to yield to the Senate on the issue of seller-funded down-payment assistance, which HUD says increases the likelihood a loan will end up in default, the Washington Post reported.
The Bush administration has threatened to veto the bill if a provision that would provide $4 billion in federal grants to states and communities to buy and rehabilitate foreclosed homes is not removed.
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