WASHINGTON — A Senate Banking Committee vote scheduled for Thursday on a bill to help stem the housing crisis is shaping up to be a cliffhanger.
Senate Banking Chairman Chris Dodd, D-Conn., and Sen. Richard Shelby of Alabama, the panel's lead Republican, were still negotiating Wednesday on the legislation, which includes two measures: one to reform government-sponsored enterprise regulation and one to stabilize housing prices. It was unclear if Democrats would win Republican support.
Also uncertain is what the different outcomes would mean for the future of the bill.
Sen. Dodd's best hope for a bipartisan bill rests with Sen. Shelby, whose vote for the legislation would garner more support from fellow GOP members.
"That's probably the most important thing I'm watching," said Jim Vogel, the head of fixed-income research at First Horizon National Corp.'s FTN Financial Capital Markets Corp. "If Shelby remains recalcitrant, I don't think any vote helps that much."
Staff members for the two senators have been in frequent negotiations in recent weeks and were continuing to try to forge a consensus Wednesday. But in an interview Monday, Sen. Shelby gave no signals that a compromise was imminent. "For us to support on GSEs a bill as part of a package, it will have to be some substantive reform," he said.
The odds that Sen. Shelby will join Sen. Dodd at this late stage appear low. But such an event would likely propel the bill toward quick Senate consideration and give it a much better chance of enactment. "If it is a bipartisan bill, the ultimate passage is much simpler," said Brian Harris, an analyst at Moody's Investors Service Inc. "The challenge on the GSE side is they haven't been able to come up with a bipartisan consensus."
Even Sen. Shelby's support would not guarantee enactment. President Bush has said he would veto the legislation because it includes a measure that would expand the Federal Housing Administration's ability to insure loans worth more than the value of a home after lenders take a significant haircut.
Observers said Wednesday that if Sen. Shelby balks at supporting the bill, other Republicans could vote for it. Such a scenario would give Sen. Dodd license to claim his bill won some bipartisan support, and that might be just enough to give the legislation a fighting chance on the Senate floor.
Sen. Mel Martinez, R-Fla., is seen as the most likely GOP member to side with the Democrats. The housing crisis has been particularly brutal in his state, and the FHA refinancing provision may make the bill more attractive to him. Sen. Martinez is also a former secretary of the Department of Housing and Urban Development, and has urged lawmakers for years to pass a GSE bill.
Other lawmakers to watch include Sens. Elizabeth Dole, R-N.C., Chuck Hagel, R-Neb., and Robert Bennett, R-Utah.
Sens. Dole and Hagel historically have taken hard lines against Fannie Mae and Freddie Mac, but observers privately question whether their desire to institute a strong regulator — even if it could be stronger — might outweigh political loyalties. Sen. Bennett is said to be open to the GSE legislation but is less pleased with the FHA refinancing measure.
The key test will be how many GOP members support the legislation. If Sen. Dodd gets only one Republican vote, that may not be of much help, but more votes would show signs that GOP members are prepared to buck their party's leadership.
"If one to three Republicans sign on, it would be tough to argue that it has broad bipartisan support," said Brian Gardner, an analyst with KBW Inc.'s Keefe, Bruyette & Woods Inc. "But he can live to fight another day, and he can work with Republicans off the committee and see if he can cobble something together."
The most likely scenario for Thursday's vote is that no compromise is reached, and Sen. Shelby and the panel's nine other Republicans oppose the legislation, leading to a party-line vote. If this sounds familiar, it is. The last time the Senate Banking Committee voted on GSE legislation in 2005 was a party-line vote.
Despite a change in party control since then, the situation appears much the same. Partisan divisions continue to center on how much power a new regulator for the GSEs should have.
Republicans are likely to argue the bill does not go far enough to rein in the GSEs. Democrats will counter that they need flexibility to provide liquidity to the housing market. Republicans are particularly focused on curbing the mortgage portfolios at Fannie and Freddie and giving a new regulator broader authority to raise minimum capital requirements.
If the bill received no Republican support, its prospects for this year, which were already poor, would get much dimmer.
"The bill is in a lot of trouble," Mr. Gardner said. "I never use the word 'dead,' because I don't think anything's ever dead in Washington, but in a lot of trouble."
Given the economic concerns of voters, other observers were less pessimistic that a party-line vote in the committee would doom the legislation on the Senate floor.
"This probably isn't going to go to the floor until the first week of June," said Jaret Seiberg, an analyst at Stanford Group Co. "Senators who come from states with housing woes are going to get an earful at home, and then they are going to come back to D.C., and one of their first votes is going to be on a housing bill, and it's going to be difficult to vote against it."
Other possibilities remain. The Democrats could seek to avoid a stalemate on the Senate floor by going straight to a conference with the House. The two chambers have passed different housing stimulus bills with the same bill number. The one the Senate passed last month was made up mostly of tax measures. Last week the House passed a broader package that included GSE and FHA refinancing components similar to Sen. Dodd's bill.
But going directly to a conference seems unlikely, since it would diminish Sen. Dodd's negotiating standpoint and face procedural objections from Republicans. A final bill from a conference would still require approval again by the full Senate.
"To have bills as important as this FHA rescue bill and as the GSE bill go to conference having never even passed … the Senate floor, it would be pretty unusual," said Andy Laperriere, the managing director of International Strategy & Investment Group.
If Sen. Dodd decides an agreement with Republicans could still be worked out, he could spend more time on that and postpone Thursday's vote. Some observers said that would be a smart strategy.
"You're only going to get one bite at this opportunity," Mr. Vogel said. "If you haven't gained enough, there's no harm in doing it again next week."
