Shelby a tough sell as Senate weighs housing compromise

Sen. Richard Shelby (R-Ala.) isn’t known to compromise unless he’s getting most of what he wants, as happened when he struck a deal on housing legislation approved by the Senate in March.

Hopes for a bipartisan agreement on a more sweeping housing package this week are much dimmer — partly because Shelby still hasn’t got what he wants.

{mosads}“Will we be able to resolve some type of a compromise between the Republicans and the Democrats and the White House?  I’m not sure,” Shelby told The Hill with characteristic guardedness in an interview Monday.

The powerful ranking member of the Banking Committee, Shelby is widely seen as an obstacle to legislation aimed at rescuing troubled homeowners the Banking Committee is scheduled to consider on Thursday. A Democrat-turned-Republican, he regards himself as a staunch defender of free markets and a guardian of the taxpayer.

He voted against a government loan to Chrysler back in 1979 as a newly elected House Democrat. The bipartisan stimulus package passed into law earlier this year was  “a waste” in his view that will only widen the deficit.

 “I’m basically against bailouts. I think that the market ought to work — that we shouldn’t chose winners and losers in the marketplace, that the market works sometimes painfully, sometimes not our way,” he explained.

In the eyes of the White House and many Republicans, the housing package Banking will consider Thursday qualifies as a bail out of lenders and reckless borrowers. Committee Chairman Chris Dodd (D-Conn.) introduced the bill on Monday night without the support of Shelby, raising doubts about its prospects in the Senate.

Shelby says he’s still open to negotiating with Dodd, but the legislation falls far short of his wishes to significantly reform oversight of Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, collectively known as the government-sponsored entities (GSEs). However, he said he is still “hopeful” that he and Dodd can craft a housing package that contains “meaningful” GSE reform.

Shelby called the homeowner rescue measure conceived by House Financial Services Chairman Barney Frank (D-Mass.) “very ambitious.” He also said the Congressional Budget Office’s  (CBO) $1.7 billion estimate of the package’s cost “looked like a low-ball number to me.”

“We don’t know the real cost of it,” he said.

Dodd, following Frank’s lead, has tried to appeal to Shelby by pairing the package to help homeowners with reform for the GSEs. It’s also a long-standing goal of the administration, and Frank thought coupling the provisions would help him court the White House.

Citing ongoing negotiations with Dodd, Shelby declined to reveal his minimum requirements for supporting GSE reform legislation. But the language unveiled by Dodd is close to GSE reform legislation the House passed last year. Though it is backed by the administration, Shelby confirmed on Monday that he wouldn’t
support the House bill in its current form.

“It’s not strong enough,” he said.

Shelby’s opposition may not be enough to doom the bill. Vulnerable GOPers, particularly those hailing from states hard-hit by the mortgage crisis, are under pressure to come to the aid of struggling homeowners.

When the House voted on similar legislation last week, 39 Republicans bolted their party to support it, despite a veto threat from President Bush.

In the Senate, Mel Martinez (R), a Banking Committee member from the high-foreclosure state of Florida, is seen as a possible supporter of bill, according to financial services lobbyists. If Shelby can’t hold his committee Republicans, it could spur more GOP support–enough to overcome a filibuster—on the floor.

The legislation would allow the government to back up to $300 billion in refinanced mortgages at risk of default—though only after lenders have agreed to trim them to make them more affordable.

Known for being impervious to pressure, Shelby does not necessarily share the administration’s urgency to pass GSE reform while a Republican still occupies the White House.

As Banking chairman, Shelby twice tried to reform GSEs. Both attempts failed, as his bills never reached the Senate floor.

Shelby’s relationship with the administration, already damaged by a 2004 federal investigation into whether he leaked classified intelligence information to the media, frayed further this year when the White House cut a deal to lift the Fannie and Freddie’ conforming loan limits in the economic stimulus package.

Shelby blamed Treasury Secretary Henry Paulson during a Senate Banking hearing for going back on his word to him and other Republicans on the matter. While acknowledging the two have had “a few dust-ups,” Shelby says their relationship has improved: “We’ve talked a lot since then, and he’s been to see me.”

He also suggested they were moving closer to each other on housing legislation and the GSE bill. “If we can do it, we might be closer together than you might think,” he said.  

The legislation Dodd unveiled Monday draws on language from Shelby’s 2005 GSE reform bill but it departs from it on many key provisions. For example, it includes language, added to the House bill by amendment, that allows the regulator to consider only the risk to the enterprises—rather than to the entire financial system—when deciding to limit the types of assets the GSEs may hold.

By contrast, Shelby would have limited the GSEs investment holdings to a selection of assets in his legislation.

Also, the Dodd legislation contains a House provision that would allow the GSEs to return to their previous capital levels more easily six months after the regulator has raised them due to concerns over a safety and soundness problem. Shelby would like to give the GSE regulator broad leeway in raising Fannie’s and Freddie’s capital levels.

A vocal critic of Fannie and Freddie, Shelby insisted that he believes they play a “good role,” saying he wants to reform them to keep them viable and limit the risk to the taxpayer if they failed.

Citing their huge debts, he argued that they would dwarf the impact of any bank that has blown up due to bad mortgage loans or the credit crunch.

“If they failed, why, Bear Stearns and all the others, they’d be like little grocery stores compared to the risk that they would have to the system,” he said.