Blog - Housing Stimulus: Congress v. Administration

It’s been a little unclear where the administration stands on the big housing stimulus/foreclosure prevention bill that Congress has been working on. Members of the Bush cabinet have been making some contradictory-seeming statements, but yesterday an official Statement of Administration Policy (.pdf) was issued, making their position clear: they’re against it and the President plans to veto.

>Unlike the Administration’s recent administrative efforts to broaden FHA eligibility, H.R. 3221 is overly burdensome and prescriptive. It would force FHA and taxpayers to take on excessive risk, and jeopardize FHA’s financial solvency. The Congressional Budget Office estimates that the FHA loan guarantee program in this bill would produce claim rates of about 35 percent and, for the first time for this type of program, require credit subsidy appropriations to operate. The $1.7 billion price tag would be passed on to taxpayers who are not participating in this new FHA program. This attempt to shift costs to taxpayers constitutes a bailout.
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>To expand the role of FHA in this way is ill-advised. And to do so without first giving the agency the tools it needs to deal with additional risk – such as more flexible risk-based pricing and a ban on seller funded gift downpayment assistance – would be irresponsible. Additionally, the bill includes a number of other objectionable provisions, such as the permanent increase to the FHA and Government Sponsored Enterprise (GSE) loan limits, a largely ineffective homeowner tax credit, an expansion of Federal Home Loan Banks’ activities beyond their area of competence, and an objectionable tax offset delaying worldwide interest allocation. If H.R. 3221 were presented to the President in its current form, his senior advisors would recommend a veto.

To be clear, for arcane parliamentary reasons, H.R. 3221 is being used as a legislative vehicle for the housing stimulus bill. That bill will be comprised of many separate bills that have been introduced independently – Barney Frank’s FHA bill (H.R. 5830), the House’s tax plan (H.R. 5720), an FHA modernization proposal (H.R. 1852), a bill to raise the portfolio cap limits of GSEs Freddie Mac and Fannie Mae (H.R.1427), community development investments (H.R. 1066), and a bill to remove legal liability for mortgage servicers who modify at-risk mortgages in good faith (H.R. 5579). The Statement of Administration Policy addresses each of these individually. They support many of them; their opposition is really focused on Frank’s FHA bill, which they’re sabotaging with the poisonous tag, “bailout.”

OMB Watch says the veto threat may be empty:

>The SAP may be more of a veto threat than a promise in the end. As Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm told CNN this afternoon, “We see this more as an effort to gain leverage over the final shape of the bill and less about an actual veto. The politics of killing this bill are negative for the Republicans, who very much need to win either Ohio or Florida if they hope to keep the White House in November. Both of those states are suffering severely during the housing mess.”