Frank announces housing deal

House Financial Services Committee Chairman Barney Frank (D-Mass.) on Tuesday announced a deal on a housing rescue package that he predicted the president would sign, despite the inclusion of $4 billion in block grants that the White House has called a deal-breaker.

After days of negotiations with administration officials and Senate Banking Committee Chairman Chris Dodd (D-Conn.), Frank sent the legislation to the Rules Committee, paving the way for a Wednesday vote on the bill.

{mosads}“No one agrees with everything in the bill, but I don’t think that there’s anything in this bill that makes the people who are for most of it gag,” Frank told reporters after back-to-back meetings with the Blue Dogs and Democratic leadership on the measure.

He said he did not know whether the legislation would attract enough votes to override a veto, but he indicated that it did not matter.

“You can tell by my demeanor how worried I am [about a White House veto],” he said, shrugging his shoulders.

The legislation, which aims to help strapped borrowers stay in their homes and overhaul the oversight of Fannie Mae and Freddie Mac, will include an administration plan to shore up the mortgage giants, whose stock prices have sunk amid fears about their solvency.

 The Treasury Department would have temporary authority to extend an unlimited line of credit to the mortgage giants and to purchase equity in them. The Federal Reserve would have the power to consult with Fannie’s and Freddie’s regulator on capital levels and other matters that could pose a risk to the financial system.

The Congressional Budget Office (CBO) on Tuesday scored the cost of the Treasury’s plan at $25 billion over two years. It also said that there is a better than even chance that the federal government will not have to spend any money at all. If the markets continue to have faith in the companies, the credit line might never be tapped, CBO’s thinking went.

Frank said that any of the line of credit by the mortgage giants would be subject to the federal debt limit, which is controlled by Congress. He also said the Treasury secretary would have the power to impose financing decisions on Fannie and Freddie, which are private companies, in the event they use the federal backup.

For example, the secretary could order the companies to withhold dividends or issue preferred rather than common stock. Fannie and Freddie’s regulator would also have total say over the compensation of the companies’ top executives.

Frank appeared to have secured the support of the Blue Dog Coalition for his plan, despite the group’s opposition to widening the deficit. After Frank briefed them on the details, one of the Blue Dog leaders, Rep. Allen Boyd (D-Fla.), said, “We’ve got complete confidence in what chairman Frank has done and his ability to protect the taxpayer.”

At the heart of the legislation is a measure to allow for the refinancing of up to $300 billion in troubled mortgages into more stable 30-year loans backed by the government. The bill also includes a package of tax incentives aimed at propping up the housing market. And, in addition to giving Fannie and Freddie a stronger regulator, it would modernize the Federal Housing Administration, which has long been a priority of the Bush administration.

Senate Minority Leader Mitch McConnell (R-Ky.) said Tuesday that he believes most of his members share his view that “we need to wrap this up. It’s been going on for a while, and it’s time to — time to finish it.”

Frank said he had accepted the Senate-passed language on beefing up the oversight of Fannie Mae and Freddie Mac. That language, hashed out between Dodd and the Banking Committee ranking member Richard Shelby (R-Ala.), would give the regulator more power to control the capital levels and portfolio size of the companies than Frank had wanted.

Frank also gave into the Senate on the effective date for the legislation, agreeing to allow the regulator to ramp up its powers immediately, rather than in six months.

Under the deal, the limit on the size of loans Fannie and Freddie can buy would be $625,000 or 115 percent of the median local sales prices, which Frank said would help people living in costly housing markets. The Senate had approved a cap of $550,000

Stimulus legislation passed earlier this year temporarily raised them to nearly $730,000, but they will fall back to $417,000 without congressional action.

The $4 billion in block grant money, which would go to states and towns to buy and rehabilitate foreclosed properties, has been a persistent sticking point of the negotiations.

Without it, Frank faced the risk of losing the support of Congressional Black Caucus members, who insisted that the funds are crucial for stopping a wave of blight from sweeping their communities.

But the White House has been just as adamant on the issue, threatening to veto the housing package numerous times over the funds. House Republicans also oppose the measure.

A spokesman for House Minority Whip Roy Blunt (R-Mo.), Nick Simpson, on Tuesday said that Republicans would “likely” be able to sustain a veto on the legislation if it includes the block grant provision.

The administration’s bargaining power over the matter diminished significantly in recent days, ever since it went hat in hand to Congress asking for authority to shore up Fannie and Freddie.

A House leadership aide argued that it would be “odd” for the president to veto the bill considering the administration’s collaboration with Democrats to get it done. “Perhaps they are just waving the flag or perhaps they are just that out of touch, we will see which one,” the aide said.

Frank argued that the administration couldn’t simultaneously demand an unlimited line of credit for Fannie Mae and Freddie Mac and deny “$12 million in funds to Milwaukee” to buy foreclosed properties.

“I don’t think that sells in this country,” he said.

Manu Raju contributed to this report.