Morning Bell: What’s the Worst Part of This Bill?

Conn Carroll / June 24, 2008

Today the Senate is scheduled to vote on the housing bailout bill that has been circulating on Capitol Hill for so long its title today is simply “a bill to provide needed housing reform and for other purposes.” When a bill’s title includes the phrase “and for other purposes,” you know the American taxpayer is about to get a raw deal. This bill is such terrible public policy in so many different ways that it’s hard to pick which one is the worst. But we’ll try.

• Bails out the banks most responsible for the current crisis. The most important thing to remember about this “housing reform” bill is that checks for the mortgage bailout go directly to the banks that irresponsibly lent money to risky borrowers. That’s why Countrywide Financial and Bank of America have pushed so hard for this program. And since it is a voluntary program, the banks get to choose which loans they’ll pawn off on the  taxpayer. As a result, banks will keep the loans that have the best chance of being paid back, while the Federal Housing Authority (FHA) is forced to guarantee the riskiest borrowers.

• Increases the risk of an even bigger taxpayer-funded bailout. Between 2000 and 2007, the FHA increased its portfolio of no-down-payment loans from 2 percent to 37 percent. These loans default at almost three times the rate of other loans. As we explained above, all of the $300 billion in loans the bill intends the FHA to take on will be preselected by banks as those with even higher default rates. The FHA posted losses of $4.6 billion last year. FHA’s losses, paid for by taxpayers, will skyrocket if this bailout passes.
  
  
• Creates a special-interest slush fund. Partisan leftist groups such as the Association of Community Organizations for Reform Now (ACORN) have pushed for a federally funded National Housing Trust Fund for almost a decade now. During the brief economic downturn in 2001, ACORN advocated the fund as an economic stimulus. From 2003 through 2006 it promoted the fund as a solution to housing prices that were too high. Now ACORN argues it’s needed because housing prices are too low. A National Housing Trust Fund will make it easier for the left to funnel millions in taxpayer dollars down the drain of ACORN’s well-established history of fraud, deceit and intimidation.

• Creates a national fingerprint registry. In the name of combating mortgage fraud, the bill sets up licensing and oversight standards for residential mortgage originators. One standard, John Berlau of the Competitive Enterprise Institute says, may “require thousands of individuals working even tangentially in the mortgage and real estate industries — and not suspected of anything — to send their prints to the feds.”

• Does nothing to actually help the economy. When House Financial Services Chairman Barney Frank (D-Mass.)  launched his FHA scheme, he told The Hill newspaper it was “irrelevant” how many homeowners would  be helped. The Congressional Budget Office estimates the latest version of the bill would aid only 500,000 households over the next four years. Another CBO study, of the Dodd plan, concluded “the plan would not be sweeping enough to restore the housing market or ailing economy.”

The bill does have one saving grace: It does contain much needed reform for Freddie Mac and Fannie Mae. The near-monopoly power these government-sponsored entities have in the mortgage industry was a key cause of the housing bubble. But conservatives shouldn’t let Freddie and Fannie’s needed reform of be held hostage. They deserve their own standalone bill.

Quick Hits:

• After success in Basra, Mosul, Sadr City and now Amarah, the Iraqi army has “brought a degree of peace to once-violent cities and significantly strengthened [Prime Minister Nouri] al-Maliki’s government.”
• After telling the military how to detain enemy combatants last week, the Supreme Court announced it will hear a case on sonar and dolphins that will enable the court to tell the Navy how best to train.
• Al-Qaeda’s in-house propaganda studio, as-Sahab, released 97 online videos last year, a sixfold increase from 2005.
• Zimbabwe’s opposition leader was forced to hide in the Dutch Embassy after strongman Robert Mugabe’s forces raided his home.
• The San Francisco Bay Area rejected a proposal for yet another power plant, this time a 115-megawatt natural gas-fired plant in Hayward.