WASHINGTON — The Senate Banking Committee easily approved a bill 19 to 2 on Tuesday that is designed to stabilize housing prices and reform oversight of the government-sponsored enterprises, giving the legislation momentum as it heads to the Senate floor.
But its future is still far from secure.
House Democrats were already expressing concern about the differences between their version of the bill, which passed two weeks ago, and the agreement hammered out between Senate Banking Committee Chairman Chris Dodd and Sen. Richard Shelby, the panel's top Republican.
House Financial Services Committee Chairman Barney Frank said he was prepared to defend a provision that would divert affordable housing fund money from the GSEs to help Hurricane Katrina victims. The Senate bill uses that money to pay for a Federal Housing Administration refinancing plan.
"A fight is brewing over the affordable housing trust fund," the Massachusetts Democrat told the New Democratic Network Tuesday morning. "More broken promises to the people of New Orleans is not something that is high on my list."
But Rep. Frank may have little negotiating power. The agreement between Sens. Dodd and Shelby appeared hard fought, and displeased some lawmakers on both sides of the aisle. Sen. Shelby is unlikely to concede further, some observers said.
The Alabama Republican solidified that impression on Tuesday, telling reporters that while he was sympathetic to Hurricane Katrina victims, some of whom are in his state, fixing the housing crisis comes first. "We've got a nationwide housing crisis here," he said.
Jim Vogel, the head of fixed-income research at First Horizon National Corp.'s FTN Financial Capital Markets Corp., said "Shelby has demonstrated himself to be what I would term scare-proof."
"His apparent position is that the principle of who pays to clean up the mess is more important than being aggressive in dealing with the housing crisis," he said.
Sen. Mel Martinez, R-Fla., who advocated for GSE reform when he was the Secretary of Housing and Urban Development, also appeared confident the Senate version would be acceptable to the House.
"I think the wisdom of the Senate bill will prevail," he said.
The Senate version appears to have the upper hand in many ways.
For one, it has bipartisan support (Only Sens. Jim Bunning, R-Ky., and Mike Enzi, R-Wyo., voted against it on the Senate Banking Committee.) The bill from Rep. Frank was opposed by most Republicans in the House.
And while the White House has threatened to veto the House bill, it has appeared more positive toward the Senate legislation.
White House Press Secretary Dana Perino said President Bush was "very encouraged that the bill appears to create a strong and independent regulator" for the GSEs, though she stopped short of saying he supported the Senate version.
Time is of the essence for Rep. Frank. The longer it takes to negotiate the bill, the more time it takes for the FHA refinancing plan to be enacted and begin helping struggling borrowers. Rep. Frank said Tuesday he hopes to have a final bill enacted by July 4.
Brian Gardner, an analyst with KBW Inc., said Rep. Frank is pragmatic and will want to finalize these issues quickly.
"He understands the politics of the Senate, and while he may not like it, I think he know that this is a rare opportunity to get all of this finished," he said. "He's pretty close to getting a lot of the things that he wants. He may not like the affordable housing component and structure, but I think he likes a lot of the other stuff, so it's his decision to make."
The bill would create a new regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan banks, while also expanding the FHA's ability to insure loans worth more than the value of a home after lenders and servicers write down the mortgage to at least 87% of its current market value.
How the affordable housing fund money would be used is not the only difference between the House and Senate bills. Another point of contention is the conforming loan limit, which caps the size of a loan that Fannie and Freddie can purchase.
The House legislation would permanently increase the limit on loans that the GSEs could secure, and the FHA could insure, to $729,750. The Senate would cap those limits at $550,000.
Though Sen. Charles Schumer, D-N.Y., voted for the bill, he cautioned lawmakers not to "limit the ability of Fannie and Freddie to do what they're supposed to do" by effectively barring them from the jumbo mortgage market.
"It would be a serious problem and would crimp any recovery we have in certain parts of the housing market," he said.
Rep. Frank signaled the matter will come up again if the bill goes to conference, especially since House Speaker Nancy Pelosi hails from San Francisco's expensive housing market.
"The loan limits will be an issue, because that's very important to the speaker and all of California," Rep. Frank said.
Sen. Jack Reed, D-R.I., who is credited with developing the compromise that makes the housing fund permanent but diverts it entirely to cover FHA costs during the first year, said it is too soon to predict how the bill will be received in the House. "To prejudge what will happen at this juncture is too early," he said.
But Jaret Seiberg, an analyst at Stanford Group Co., said the final version of the bill is likely to look much like the Senate version.
"Given the importance to get this done, it's hard to see a one-year delay in the affordable housing fund sinking the legislation," he said. "That could make Democrats look bad a few months before voters go to the polls."
Others downplayed the differences between the House and Senate and said a compromise was possible. Robert Davis, the executive vice president of government relations at the American Bankers Association, called the bill "eminently conferenceable."
"There is nearly unanimous support for a strong regulatory structure and that's necessary to maintaining the vitality of the GSEs," he said. "I don't think the other issues that need to be resolved are going to stand in the way of getting that done."
Also unclear is whether Fannie and Freddie may try to pressure their allies in the House to scuttle the bill in conference. On Tuesday both GSEs issued lukewarm endorsements of the Senate version. "We support legislation and the work of the committee," David Palombi, Freddie's senior vice president of corporate marketing and communication, said in a statement. "We would stress, however, that if not applied carefully, the bill could adversely impact the mortgage market."
A Fannie spokesman said in a statement that the GSE "continues to support the creation of a stronger, independently funded, bank-like regulator" but that it has concerns with provisions to create limits on mortgage portfolios.
"We hope that the final legislation recognizes the importance of mortgage portfolio activities in maintaining the liquidity and stability of the secondary mortgage market."
