By: David Rogers

The Treasury Department’s plan to shore up investor confidence in the mortgage finance market gained traction in Congress on Monday despite large declines in regional bank stocks and conservative grumbling over Washington’s expanded role as a lender of last resort.

“The top financial officials of George Bush’s administration have come before the public and said ‘We’re from the government, and we’re here to help you,’” House Financial Services Committee Chairman Barney Frank (D-Mass.) told Politico with a grin. “That’s what they are saying to the stock market on the housing crisis — they’re from the government and they’re here to help us.”

After weekend consultations with Treasury Secretary Henry Paulson, Frank hopes to move a bill through the House as early as Thursday, overriding conservative demands for more time. And Senate Banking Committee Chairman Chris Dodd (D-Conn.), who will hold a major hearing Tuesday, embraced the same “one vote, one package” strategy — melding the Treasury initiative with a larger housing bill that cleared the Senate last week.

But this speedy schedule concerns some Republicans. “I think Congress should give this serious review,” said House Republican leader John A. Boehner of Ohio. “This is serious stuff, and I support what they are trying to do, but it needs review.”

“Congress should not use this ‘crisis’ to rush the government into the mortgage business,” said Sen. Jim DeMint (R-S.C.).

And Dodd warned the House against overreaching with its newfound leverage over housing issues but conceded that, for the deal to work, the Senate will have to give up a $4 billion community development block grant program in its bill.

Frank said he would seek to revive the community funds on a later legislative vehicle this year, but he is more focused on restoring provisions — some opposed by Senate Republicans — to integrate the earned income tax credit better with low-income housing programs.

“This has flipped the momentum,” Frank said of the House-Senate rivalry over the housing bill. “We’re not going to try to do things that they hate, but we’re going to do things that are reasonable.”

To expedite matters, Treasury submitted formal legislation Monday seeking 18-month authority to extend credit and purchase an equity interest in Fannie Mae and Freddie Mac, the two mortgage finance giants.

The current $2.25-plus billion cap on Treasury’s line of credit to each of the companies would be lifted, but no new ceiling is set, nor is there a cap on the level of equity investment.

Treasury officials said their hope is that neither mechanism will have to be invoked, and they emphasized that the authority will expire at the end of December 2009. In fact, Freddie Mac attracted more bidders Monday for a highly anticipated auction of $3 billion in short-term securities, a sign of greater confidence, Dodd said.

But lawmakers are likely to add at least reporting requirements so as to give Congress some oversight over whatever actions are taken. And if Fannie or Freddie should use the extra credit, Frank said some Democrats would like to add requirements that dividends to the companies’ stockholders be suspended while the government support was provided.

Paulson will be the lead administration witness to appear in front of Dodd on Tuesday, together with Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox. And the rapid movement testified to Paulson’s close working relationship with leading Democrats and his willingness to jump ahead of the White House to broker deals — albeit always coming back to President Bush for final approval.

 

“The man has to have the largest phone bill in Washington,” said one Senate Republican aide. And as much as House Republicans complain that Paulson moves ahead of the White House, Sen. John McCain, the party’s presumptive presidential nominee, said the actions were “correct.”

“I hope that the Congress will give them the needed authorization,” McCain said. “These are very difficult times and a time where Americans need confidence. And I hope that these measures will restore some of the necessary confidence in our institutions and preserve the ability of Americans to obtain loans in order to buy a home.”

With the expanded credit would come a greater government regulatory role, pushing the Federal Reserve more and more to the forefront. As part of his new proposal, Paulson wants the Fed to play a greater part in consulting with regulators overseeing Fannie and Freddie in the future. And in contrast to his predecessor Alan Greenspan, Bernanke has been willing to use his power to implement new roles to try to protect homebuyers against the shady subprime lending practices that contributed to the current housing crisis.

“Frankly, it is a recognition that the Fed is the best source of financial expertise that we have in the federal government,” said Frank. And he argued that “the really big story getting lost” is the fact that Bernanke was effectively “repudiating” Greenspan by proceeding with the new lending rules, approved by the Fed’s Board of Governors on Monday.

The new Fed rules prohibit unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.

Frank said the larger housing bill will expand the ability of the Federal Housing Administration to provide loans to some of the same working-class home buyers who were forced into the subprime market to get credit. At the same time, the housing package includes his initiative to create a low-income housing trust fund as a source of money for construction of affordable housing.

House Speaker Nancy Pelosi (D-Calif.) embraced the proposal Monday night, saying it is “essential that this legislation become the law of the land.” But amid the turmoil now, Democrats concede they are not immune from the wholesale changes in the economy.

“I think both parties have been knocked a little off balance by the pace of change taking place in the country,” said Scott Lilly, a senior fellow with the Center for American Progress. “Dramatic shifts were already starting to occur in the political arena before we were hit with devastating increases in energy and food prices and a relatively unrelated implosion of real estate prices. At this point it is hitting the Republican Party much harder than the Democrats, but both sides are having a hard time adjusting to the new realities.”

Energy is one case in which Democrats have been caught off guard, and just as Paulson has had to think of new ways to use government to stabilize the housing market, Lilly has suggested new ways of using the Strategic Petroleum Reserve as a kind of Federal Reserve or central bank for oil.

Opening up new lands for exploration won’t immediately relieve the current price situation, Lilly said. But oil could be released from the reserve with the promise that future leases on government lands will impose a new royalty, essentially requiring that a portion of the newfound oil be dedicated to the reserve.
“We have to be thinking of two things: the way the public sector can respond to a market failure temporarily and then work with the market going forward, “ Frank told Politico.

Copyright © 2008 Capitol News Company, LLC | Distributed by Noofangle Media