Bush Threatens Veto of Housing Bill

President Bush yesterday threatened to veto the housing bill that the Senate had just begun debating, claiming several provisions would subsidize irresponsible borrowing and lending.

In a statement, the administration singled out two provisions in the bill involving tax-exempt bonds that would be veto-worthy: one that would provide $3.9 billion in Community Development Block Grant funds to states so they could purchase foreclosed properties and another that would allow the federal home loan banks to guarantee all tax-exempt bonds.

The CDBG program provides grants to state and local governments to fund economic development projects and can be used in projects financed by municipal bonds. The bill would allow the additional CDBG funds to be used by localities with the highest foreclosure rates to purchase and refurbish foreclosed homes.

But the administration said it opposes the proposal because, "The principal beneficiaries of this type of plan would be private lenders who are now the owners of the vacant or foreclosed properties instead of struggling homeowners."

Currently, the only bonds that can receive a federal guarantee are housing bonds, but the Senate measure would allow the federal home loan banks temporarily to guarantee all tax-exempt debt. The administration argued that the banks should be focusing on the housing market at this point, not expanding their reach.

"The FHLBs are providing important support to the housing market and their attention should not be diverted towards insuring non-housing obligations in markets where they lack expertise," the administration said in the statement.

Despite the veto threat, Sen. Charles Schumer, D-N.Y., said yesterday that the administration may not follow through, since the bill would also strengthen regulations for, and reform, Fannie Mae, Freddie Mac, and other government-sponsored enterprises, as well as expand and modernize the Federal Housing Administration. The administration has been working for two years to get Congress to pass laws addressing these matters, Schumer said.

"They're kind of stuck," he said at a press conference, adding that GSE and FHA reform legislation was approved by the Senate Banking Committee, of which he is a member, by an overwhelming vote of 19 to 2.

The proposed bond-related and other tax provisions, which Senate Democratic leaders plan to introduce as substitute language to HR 3221, the House version of a housing stimulus bill, has also been threatened with delay because of concerns that Senate Banking Committee Chairman Christopher Dodd, D-Conn., received favorable mortgage terms from Countrywide Financial Corp., a mortgage lender heavily embroiled in the subprime mortgage housing crisis.

Some Senate Republicans have called for the bill to be sent to the banking committee until it can be determined how much Countrywide would stand to gain if the bill were passed. But Senate Majority Leader Harry Reid, D-Nev., has said the proposal is too important and must be immediately considered by the Senate.

Schumer contended yesterday that the bill contains no provisions that would benefit a single entity. "This has not been done in secret," he said.

Meanwhile, the mortgage revenue bond provision in the bill would be $1 billion larger than the one that appeared in a draft summary of the bill's provisions that was made available Wednesday. State and local housing finance agencies would be able to use an additional $11 billion in mortgage revenue bonds to refinance subprime mortgages and provide loans to first-time homebuyers, not the $10 billion originally proposed.

The increase stems from the fact that Senate leaders wrapped into the provision about $900 million that would be set aside for rural states to help homeowners with mortgage revenue bonds. The provision was in an earlier proposed housing measure.

While the Senate began considering the bill on the floor yesterday, debate is expected to continue on the measure into next week.

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