WASHINGTON – The House passed the massive mortgage bailout bill this afternoon on its second try, after agreeing to add tens of billions in tax breaks to persuade wavering members.
The bill, approved earlier by the Senate Wednesday night, will allow the Treasury to buy up to $700 billion in distressed mortgage securities from banks and credit unions and will lift the coverage on federally insured bank and credit union deposits to $250,000 per account, from the current $100,000 per account, for one year, in order to shore up depositor confidence in the financial system.
The final House vote was 263-to-171 in favor of the bailout, which was signed into law almost immediately by President Bush.
Few natural person credit unions are expected to participate in the program, but a major beneficiary could be the corporate credit union network, which is sitting on some $10 billion of unrealized losses on its mortgage securities portfolios.
Final passage of the bill was only possible because both the House and Senate added lucrative tax breaks after the House narrowly rejected the bailout Monday, precipitating a huge sell-off on Wall Street.
The bill, which was introduced by Treasury Secretary Henry Paulson Sept. 22 as three pages, grew into a 430-page document after the addition of dozens of tax breaks which could bring the cost of the package to more than $850 billion.
The tax breaks include a roll back in the so-called alternative minimum tax that will cost the Treasury an estimated $100 billion a year; $8 billion in tax relief for people affected by natural disasters in the Midwest and Gulf Coast; an extension of a tax deduction for college tuition; an extension of a tax deduction for taxpayers who do not itemize their returns; and billions in tax credits for alternative energy projects.
Also, $3.3 billion for funding rural schools; tax benefits for commercial fisherman who received court settlements for the 1989 Exxon Valdez oil spill; a tax break for NASCAR racing; an excise tax exemption for producers and importers of wooden arrows; and an extension of a tax break for makers of rum; among others.
The added tax breaks angered House members, both Democrats and Republicans. "Wall Street wants the $700 billion so bad, they can taste it," said California Democrat Brad Sherman, an opponent of the bill who decried the additional inducements as "pork." "What have they done to the bill?" said Sherman. "They’ve added earmark pork to the bill in an effort to get us to buy it."
An agitated Republican Steve LaTourette of Ohio urged that the House vote against the bill because of the huge costs, and derided the new tax breaks. "Strip out the pork," said LaTourette. "This pork doesn’t belong in this bill. This is a financial rescue package; we’re told that the economy’s melting down!"
The bill will authorize the Treasury to buy up to $700 billion in underwater mortgage assets from banks and credit unions, including foreign banks with significant operations in the U.S. Supporters of the bill say they expect the Treasury to earn a profit on those securities by managing them and recreating a market that has been decimated in recent months.
The Treasury would also be authorized to use the funds to inject capital into troubled institutions by buying equity in them.
The bill would try to limit executive compensation at those institutions that participate in the plan.
After the House vote NCUA Chairman Michael Fryzel said he was pleased that credit unions were given equal treatment with banks in the bill. "I am particularly pleased that Congress included important last-minute changes recommended by NCUA," said Fryzel, who cited the increase in federal deposit insurance limits and giving NCUA a role in determining how assets will be acquired from credit unions.
NAFCU President Fred Becker said his group was glad Congress expressly included credit unions. We cannot emphasize enough that credit unions are sound and that they did not cause the economic troubles that this package addresses,” Becker said. “It is also important, however, that credit unions are not disadvantaged under this measure, and we thank the leaders in both the House and Senate and in the administration for recognizing and addressing that concern.”
CUNA President Dan Mica said, "Credit unions had no hand in creating the root cause of the problem this bill aims to fix. Without question, however, they and their members like so many others are collateral damage of the economic hardship that has resulted. In that sense, Congress had to act to avert any additional damage to the nation’s economy and inject confidence in our financial system."
