The House is expected to vote Wednesday on a $300 billion omnibus housing bill that would authorize $4 billion of Community Development Block Grant funds for state and local governments to use to purchase, refurbish, or raze foreclosed properties.
The grants, one of several bond-related provisions in the bill, will likely be preserved in the legislation despite an initial White House veto threat, thanks to the demand for a quick resolution to the Fannie Mae and Freddie Mac dilemma.
John Murphy, executive director of the National Association of Local Housing Finance Agencies, said he anticipates the bill will make it to President Bush's desk soon, and to be signed into law.
"I think that the bill will be sent to him by the end of next week," he said.
Before that can happen, the legislation has to clear some hurdles such as how to add the Treasury's proposals to provide temporary but unlimited backstop funding for Fannie Mae and Freddie Mac, if necessary, and also address lawmakers' concerns about writing the department "a blank check."
The two government-sponsored enterprises had been big buyers of municipal housing bonds until two years ago. They also provide some credit enhancement for housing bonds.
Sources from both parties are concerned with Treasury Secretary Henry Paulson's proposals for unlimited Treasury authority to buy equity in the companies and offer them a line of credit through 2009. Treasury's proposal, announced last Sunday, also calls for the creation of an independent regulator for the GSEs.
But the parties are likely to attach some spending limits on the GSE legislation, congressional staff said. The Treasury's unlimited option could push the national debt over the Congress's mandated cap of $9.8 trillion. The national debt stands at $9.5 trillion, as of July 18, leaving roughly $300 billion under the current cap.
Paulson has suggested Treasury be given an exemption from the current debt limit of $9.8 trillion, but lawmakers appear reluctant.
"If we were to go the Treasury route, we would be inching closer and closer to practically falling over the line of integrating Fannie and Freddie with the federal government's obligations," said a Republican staffer with one of the House committees, adding that any exemption for the GSEs from the debt limit "would be a sticking point for us."
House Financial Services Committee chairman Barney Frank, D-Mass, and Senate Banking Committee chairman Christopher Dodd, D-Conn., both said they were uncomfortable giving a "blank check" to the Treasury for a GSE bailout, as have some Republicans, including Dodd's Republican counterpart, ranking minority member Sen. Richard Shelby, R-Ala.
The proposed CDBG funds, which could be used for economic development projects financed with municipal bonds, were also once considered for the chopping block. The administration highlighted that provision as unacceptable in its veto threat, arguing that it would help private lenders instead of struggling homeowners. House Democratic leaders had considered sacrificing the funds to ensure the housing legislation could pass.
However, housing sources said Friday that a deal has been cut under which in return for adding Paulson's proposals to the housing bill, the CDBG provisions will be retained.
While lawmakers are still hammering out specifics of the legislation, mainly dealing with the new Fannie and Freddie provisions, Murphy said that the major tax-exempt bond provisions should make it through the legislative process unscathed.
"It'll be ready by Wednesday," he said. "It's going to be substantially similar to the Senate-passed bill."
In addition to GSE reform and CDBG funds, the bill would provide an additional $11 billion of mortgage revenue bonds to state and local housing finance agencies that could be used to refinance subprime mortgages as well as to provide new mortgages to first-time homebuyers. The bill would also repeal the alternative minimum tax on all new housing bonds permanently.
Further, it would create a revolving fund financed with GSE profits, which would be dedicated to financing affordable housing developments.
Meanwhile, congressional Democrats are pushing for a second economic stimulus bill. House Speaker Nancy Pelosi, D-Calif., said in a CNN interview Thursday night that she would like to see a $50 billion stimulus package introduced in Congress, which could contain bond-related infrastructure funding. Presumptive Democratic presidential nominee Barack Obama, D-Ill., also expressed support for a second stimulus bill.
Andrew Ackerman contributed to this story.