Wednesday, May 07, 2008

Bush Issues Veto Threat Against Frank Housing Bill

After sending mixed signals for weeks about H.R. 5830, the Frank FHA mortgage refinaince loan guarantee program, President Bush issued a Statement of Administration Policy (SAP) opposing a number of provisions in the housing stimulus package (H.R. 3221) being considered on the House floor today and declaring that he would veto the package in its current form.

Ironically, the elements in the bill intended to draw bipartisan support are "modernizing" the FHA and more stringent oversight of Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that guarantee the purchase and sale of home mortgages in the secondary market. But the administration statement called the inclusion of FHA modernization and GSE reform "largely symbolic" and said Frank's FHA rescue plan "would force FHA and taxpayers to take on excessive risk, and jeopardize FHA's financial solvency."

Yet, even in the worse case, the risk to taxpayers as estimated by the Congressional Budget Office could come to as much as $1.7 billion over five years, or roughly $400 million a year. Since there are over 100 million "tax units" in the U.S. (individuals plus households paying taxes), the Frank plan would, at most, cost the average taxpayer $4 dollars a year. How much of a risk is that against the backdrop of what Princeton Prof. Paul Krugman projects will be $6-7 trillion in home equity value lost in the housing crisis?

The SAP may be more of a veto threat than a promise in the end. As Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm told CNN this afternoon, "We see this more as an effort to gain leverage over the final shape of the bill and less about an actual veto. The politics of killing this bill are negative for the Republicans, who very much need to win either Ohio or Florida if they hope to keep the White House in November. Both of those states are suffering severely during the housing mess."

Stay tuned.