FHA Reform Hits The Wall
The FHA legislation being debated in Congress seems to have come to an impasse. How long that will last, nobody knows.
After being approved by the House of Representatives on Tuesday, H.R. 1852 - a.k.a the “Expanding American Homeownership Act of 2007″ - went to the Senate Banking Committee where its version was passed on Wednesday.
Federal Reserve Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson spent Thursday in front of the House of Representatives testifying about the constraints they’re placing on a “housing bailout.” At issue is the potential moral hazard such action may cause. Nobody at the hearing believed their actions would create such a situation.
“Nothing being contemplated rises to the level,” said Frank, Democratic chairman of the House Financial Services Committee.
“I don’t see a moral hazard,” said Paulson, Republican secretary of the Treasury.
“I see no problem,” said Bernanke, independent chairman of the Federal Reserve Board.
Rep. Barney Frank is eager to get the FHA reform bill signed into law, but the differences between the House and Senate version are great and the full Senate must pass their version entitled the “Building American Homeownership Act of 2007″ before negotiations can begin.
The chief differences in the two bills are -
That’s where the Senate parted ways — it did not agree to the same terms, refused to authorize zero down loans, and refused to raise the conforming loan limit beyond the current $417,000 for high cost areas, among other changes.
President Bush is also opposed to raising the conforming limits and it would be unlikely he’d sign final legislation into law that called for this change. Rep. Frank wants to get a compromise in place as quickly as possible, but political maneuvering may slow that down.
Frank repeatedly signaled that he wants to broker a solution. The only finger-pointing he did during the hearing was aimed at the Senate, where a slower acting banking committee has passed a more limited response. Frank wants a broader approach — fast — so he can begin House-Senate-Administration negotiations on a final bill.
But the politics in the Senate are complicated by its hefty pool of ‘08 presidential candidates — not just Hillary Clinton and Barack Obama, but also banking committee chairman Chris Dodd, all eager to score political points with primary voters. That could slow down the process.
We can forget about significant FHA reform for now. Unless some dramatic developments unfold soon, this legislation will be batted back and forth like a political balloon with no real solution. The Fed’s rate cut will help a few people, but their action has actually increased long term rates. A golden opportunity has been blown.