The fate of a plan to authorize the Federal Housing Administration to guarantee up to $300 billion in loans to help troubled borrowers refinance into more affordable mortgages could be decided Thursday by members of the Senate Banking Committee.
Committee Chairman Chris Dodd, D-Conn., has included his version of the FHA expansion approved by the House last week in his own bill, "The Federal Housing Finance Regulatory Reform Act of 2008."
Although Dodd’s plan differs in some details from the House proposal — first put forward in March by Rep. Barney Frank, D-Mass. — both programs would allow the government to guarantee refinance loans only when lenders agree to write down some of an existing mortgage’s principal. To prevent house flipping, borrowers would be charged exit fees if they sold or refinanced their home within five years.
While Frank hopes the plan could help up to 2 million borrowers, the Congressional Budget Office estimates that about 500,000 borrowers could be helped over five years, at an estimated cost to taxpayers of $1.7 billion.
The Bush administration, which last year created the more limited FHASecure program to help borrowers facing foreclosure, has threatened to veto the plan, which it has criticized as a bailout of lenders and speculators.
The administration maintains that FHASecure has helped 150,000 borrowers refinance since the program was launched, and that plans to expand the program in July will allow a total of 500,000 troubled borrowers to refinance into government-backed loans by year-end (see story).
But Democrats are hoping that by tying FHA expansion to other housing legislation the administration supports — including a bill that would strengthen oversight of Fannie Mae and Freddie Mac — they can win over Republican lawmakers and force a compromise.
In a statement, Dodd called the plan a "temporary initiative" to address the systemic risk foreclosures pose to the economy and financial system.
"This measure can assist hundreds of thousands of Americans who, due to no fault of their own, find themselves at risk of losing their homes," Dodd said. Alluding to the $30 billion in loans the Federal Reserve provided in March to keep Bear Stearns out of bankruptcy and facilitate the sale of the company to JP Morgan Chase, Dodd said FHA loan guarantees could be expanded at a fraction of the cost.
The massive housing bill approved by the House last week in a 266-154 vote last week (see story) won the support of 39 Republicans. In the Senate, Dodd has been in talks with the ranking Republican on the banking committee, Sen. Richard Shelby, R-Ala., in the hopes of reaching an agreement before Thursday’s vote.
Shelby has opposed giving Fannie Mae and Freddie Mac more leeway to buy and guarantee loans, and Dodd’s bill would set tighter loan limits for the government-sponsored entities, or GSEs, than the legislation passed by the House last week.
While the House legislation would make permanent the temporary increase in the $417,000 conforming loan limit — allowing loans of up to $729,750 in high-cost areas — Dodd’s bill would cap the upper limit at $625,500.
Shelby told Reuters that while he is still negotiating with Dodd’s staff, it would not bother him to let the bill fail if the talks don’t produce results.
The bill is not expected to pass without Shelby’s support. Although Republicans are in the minority in the Senate, holding 49 seats, either party must put together at least 60 votes to move bills through procedural roadblocks, Reuters reported.
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