Housing splits GOP, Bush

The housing crisis created a wedge between congressional Republicans and the president on Tuesday, giving Democrats an opportunity to push their plan.

Hours after President Bush called on Congress to pass the mammoth housing package quickly, congressional Republicans broke with him, trying to slow or stop an effort to shore up mortgage giants Fannie Mae and Freddie Mac.

{mosads}The split prompted House Democrats to restore a top priority of the House liberals and the Congressional Black Caucus — $4 billion for local governments to buy foreclosed properties.

The Republican moves confused and amused Democrats who still seem prepared to steamroll past the objections of the minority and pass the bill early next week.

“I knew I was taking on extra responsibility when I took over the committee,” said Financial Services chairman Rep. Barney Frank (D-Mass.). “I didn’t know I was becoming the referee of Republican family disputes.”

The rescue plan, authored by Treasury Secretary Henry Paulson, also ran into headwinds in the Senate.

In a Banking Committee hearing, Sen. Jim Bunning (R-Ky.) berated Paulson, ridiculing his plan and at one point shouting, “I will do everything I can to stop it!” And Sen. Richard Shelby (Ala.), the top Republican on the committee, raised doubts about the proposals and indicated that he wouldn’t rubber stamp them.

The administration is asking for temporary authority for the Treasury Department to extend an unlimited line of credit to the mortgage giants and to purchase equity in them. It also wants Congress to allow the Federal Reserve to consult with Fannie’s and Freddie’s regulator on capital levels.

House Minority Leader John Boehner (R-Ohio) and Minority Whip Roy Blunt (R-Mo.) said the housing bill, which they’ve opposed previously, should be split from the rescue of the mortgage giants.

They want hearings on the plan to bolster the mortgage giants, which would bog the bill down for weeks and directly contradict the administration’s plan to move speedily to shore up the congressionally chartered companies.

“There is little question that action is necessary, but there are also important questions that must be answered about the Treasury proposal before we act,” the two leaders said in a joint statement.

That’s a break from Bush, who in a White House news conference said speed was of the essence.

“I urge members to move quickly to enact the plan in its entirety, along with the good oversight legislation that we have recommended for both Fannie Mae and Freddie Mac,” Bush said.

The Republican leaders’ call came 24 hours after a similar request by Rep. Jeb Hensarling (Texas), chairman of the conservative Republican Study Committee. That prompted Frank to allege “the most right-wing members of the Republican Party are in charge.”

But Boehner spokesman Michael Steel rejected that characterization, saying Boehner has long opposed the underlying bill and doesn’t think the legislation for the mortgage companies should be “jammed through.”

{mospagebreak}Democrats also played to their base on the housing bill Tuesday, restoring $4 billion for local governments to buy foreclosed properties. House leaders had agreed Monday to jettison it in order to get the bill done quickly.

But as the time frame for House passage slipped to next week and Bush gave his backing, the dynamic changed. Bush had threatened to veto the bill, but with the addition of the measures his economic team crafted to help Fannie Mae and Freddie Mac, he seemed unlikely to do so, and Democrats were emboldened.

“I was concerned about a veto threat before,” said Frank. “Now there’s things in there the president cares about.”

{mosads}Frank added that when Republican leaders indicated they’d oppose the bill, he felt he needed to ensure that more Democrats were on board by restoring one of their top priorities.

“How do I go to Democrats and say we’re going to do a lot of things to reassure Wall Street, but we can’t give $4 billion to local governments to buy foreclosed properties?” Frank said.

Frank said he believes House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) will be able to provide an offset so the cost of the program won’t be heaped onto the deficit.

Frank also plans to change the bill to require that no dividends will be paid to shareholders if the companies use the line of credit and give regulators say over the pay of the companies’ executives.

Paulson faced tough questioning from both Democrats and Republicans on the Senate Banking Committee, particularly in regard to the line of credit for Fannie and Freddie.

He argued it should be unlimited, saying that would be the surest route to avoiding using any taxpayer funds at all because it would restore the market’s confidence in the two companies.

“Really, the greater the confidence, the less likely the taxpayer is … to pay,” he argued.

 Sen. Robert Menendez (D-N.J.) told Paulson, “It is counterintuitive to say, ‘Give us a blank check or blanket authority to ensure that taxpayers are not on the hook.’ ”

The proposals were met with skepticism from Shelby, who asked Paulson to tell him their potential cost to the taxpayer.

Paulson gave him no answer, saying repeatedly that he hoped the new authority would never be used. He also stressed that it would be temporary, saying the line of credit and permission to purchase equity would expire after 18 months.

After the hearing, Shelby told reporters, “I do understand why you need ambiguity sometimes, but when you’re dealing with the taxpayers’ money I don’t think ambiguity has a place.”

Fannie’s and Freddie’s near collapse, and the unprecedented intervention by the Treasury and the Fed to shore them up, are a vindication for Shelby and others who warned that the mortgage giants posed a systemic risk to the financial system.

In pointed opening remarks at the hearing, Shelby noted recent assurances by Senate Banking Committee Chairman Chris Dodd (D-Conn.) that each government-sponsored enterprise was safe and sound.

“If the enterprises are operating in a safe and sound manner, it begs the question: What are we doing here?”

Seeking to keep the discussion focused on the economy, House Speaker Nancy Pelosi (D-Calif.) also announced that she wants the House to pass a second economic stimulus package that would include tax rebates.

But she declined to give a timetable for passage or outline the size of the package. And she appeared to seek the support of Bush, who said he is not prepared to support such a package. But she said opposing Democrats on the stimulus package will be politically unpopular.

“It’s the economy, Mr. President,” Pelosi said.