The Housing Chronicles Blog: White House gives mixed signals on housing bill

Saturday, May 10, 2008

White House gives mixed signals on housing bill

If we ever had a "decider" in the White House, apparently that doesn't extend to the best ways to address the housing bust or even to negotiate in good faith on a compromise bill. From the New York Times:

Even as the housing foreclosure crisis deepens, legislation to rescue homeowners and their lenders appears to be in significant political jeopardy.

The bill, which passed the House on Thursday, is quickly becoming a casualty in a battle between the Bush administration, which says it opposes any taxpayer bailout that would only further encourage risky lending practices, and Democrats who say that homeowner assistance is the only way to contain the damage to the broader economy.

Despite pledges by the White House and Democrats to work together, the bill produced partisan recriminations the day after it passed the House. Democrats are charging that the administration has sent mixed signals on whether it even wants a bill. In a twist, Democrats sought to claim the support of Ben S. Bernanke, the Federal Reserve chairman, who this week called on Congress to help mortgage holders. That claim prompted a spokeswoman for Mr. Bernanke to deny that he was favoring any piece of legislation over another.

The Democrats also said that Treasury Secretary Henry M. Paulson Jr. appeared at first to encourage their bill, or at least not stand in its way. But Mr. Paulson’s spokeswoman vehemently denied that...

The measure now goes to the Senate, where it faces opposition among Republicans who have tapped into a broad wave of bailout resentment in states less affected by the crisis. And the failure of the House to adopt it by a veto-proof margin is likely to further embolden recalcitrant Republicans in the Senate who have so far managed to block action, Democratic supporters of the measure said on Friday.

Senator Christopher J. Dodd, the Connecticut Democrat who heads the Banking Committee, said Friday that he was hoping to quickly complete negotiations with the ranking Republican on the committee, Senator Richard C. Shelby of Alabama, and have the committee vote on a measure next week...

Under the voluntary plan that was approved by the House, borrowers at risk of default would be able to refinance their loans at a more affordable 30-year fixed-rate mortgage insured by the Federal Housing Administration.

In exchange for avoiding foreclosure, lenders would have to agree to reduce the principal balance. The borrowers would pay a monthly insurance fee that would go to a fund to protect taxpayers from losses. A consensus was emerging on Friday that if Congress adopted a measure, it would likely be far more modest than the one passed by the House, which itself has been criticized by housing groups for being too small.

Still, there is a clear split among Republicans, and perhaps within the administration, over how to proceed. Last month, Senator John McCain, the presumptive Republican nominee for president, sharply pivoted and called for government aid to homeowners in danger of losing their homes.

His plan was more modest than the Democratic plan. But it was notable because, only a month earlier, he had warned against broad government intervention to solve the mortgage crisis, saying it was “not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

Democratic strategists said the change reflected the importance on the electoral map of states like Florida, Ohio and Michigan, all hit hard by the crisis...

After administration officials engaged in talks with House Democrats over their measure, President Bush said on Wednesday that he would veto it. The Democrats say they made several changes sought by the administration in an effort to gain its support. But in a statement of administration policy, the White House said the legislation was burdensome and prescriptive.

“It would force the Federal Housing Administration and taxpayers to take on excessive risk, and jeopardize F.H.A.’s financial solvency,” the statement said.

Even lawmakers who have criticized some elements of the House measure said they were hearing mixed signals from the Bush administration.

“I was surprised by the White House threatened veto,” said Senator Mel Martinez, a Florida Republican who served earlier in the Bush administration as the secretary of housing and urban development. “The White House message has not been consistent.”

Mr. Martinez said that the “obtuse” nature of the veto threat suggested to him that the administration had issued it as a negotiating tactic.

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