WASHINGTON (AP) - A component of the House s proposed economic stimulus package intended to direct aid to the troubled housing market could run into trouble in the Senate.
Republican senators are gearing up to resist -- or scale back -- a provision that would give a bigger role to government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac, saying it poses too much risk to the U.S. financial system.
A deal reached Thursday between House Speaker Nancy Pelosi and Republican Leader John Boehner of Ohio -- and endorsed by the White House -- would allow the two companies for one year to purchase home loans up to 75 percent larger than the current limit of $417,000 in areas of the country with expensive home prices such as California and the Northeast.
House lawmakers are still negotiating on how high that limit should be, with Democrats pushing for nearly $730,000 and Republicans advocating $625,000, a Boehner spokesman said Friday.
But at least two key Senate Republicans argue that it would be a mistake to change the limit at all without establishing a new regulator with the power to reduce the companies massive mortgage portfolios, now worth a combined $1.5 trillion. Multibillion-dollar accounting scandals at Fannie and Freddie in recent years brought demands for tighter government supervision and cuts in the companies holdings.
Sen. Mel Martinez, R-Fla., a former housing secretary in the Bush administration, said a better compromise would be to extend loan limits for a much shorter period: 90 to 120 days. Then, those limits would expire unless lawmakers pass a long-delayed oversight bill, he said.
"For a long time we have known these entities needed stronger regulation," Martinez said in an interview Friday. "They have the implicit guarantee of the federal government...If these companies were to go under, the Treasury would be in a terrible fix."
Sen. Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, agreed. Raising the loan limits without stronger regulation "enables thinly capitalized entities with recent accounting problems to provide a high-risk benefit to the wealthiest Americans without any real consideration of the need to do so or of the risks it presents to the taxpayer," Shelby spokesman Jonathan Graffeo said in an e-mail.
At least one Democrat was sympathetic to that argument. Sen. Tom Carper, D-Del., said he supports a six-to eight-month extension for the loan limit to prevent sapping momentum for a bill overhauling regulation of the companies.
Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, told reporters at a briefing with Treasury Secretary Henry Paulson on Friday that he plans to move forward with a bill to strengthen regulation of Fannie and Freddie.
The two companies were created by Congress to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. Together they hold or guarantee about $4.9 trillion in home-mortgage debt.
The government agency that regulates Fannie and Freddie, the Office of Federal Housing Enterprise Oversight, said in a statement Thursday that raising the limits for Fannie and Freddie without providing stronger government oversight "would be a mistake." Fannie and Freddie both support the change.
While Senate leaders want to send the economic stimulus package to the White House by Feb. 15 for President Bush s signature, Democrats were considering adding more spending for the unemployed, food stamp recipients and states suffering budget crunches. If Democrats push for changes, that could give Republicans a chance to do so as well.
President Bush urged Congress on Friday to quickly pass an economic stimulus package void of extraneous spending, saying only quick action will kickstart the sputtering economy. "I strongly believe it would be a mistake to delay or derail this bill," Bush said.
Shares of Fannie Mae fell $2.39 or 7 percent, to close at $31.80, while shares of Freddie Mac fell $2.42, or 7.6 percent, to close at $29.58, as investors worried about the companies risks from rising mortgage defaults.
Nevertheless, Banc of America Securities analyst Robert Lacoursiere said in a research report Friday that Fannie and Freddie "are positioned to benefit" from higher loan caps. "The current stock prices reflect greater (mortgage losses) than will ultimately be realized," he said.
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Associated Press Writer Andrew Taylor contributed to this report.
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