Senate Refi Bill Bogged Down By Battle Over GSEs, Housing Issues

By Kevin Wack

AUG 21, 2012 5:13pm ET

WASHINGTON – Democratic legislation that would allow more Americans to refinance their mortgages has stalled in the Senate amid a partisan dispute over whether to allow votes on other housing measures.

The procedural stalemate appears likely to deny President Obama a victory on one of his top economic agenda items for 2012 – which, some Democrats argue, is precisely what Republicans want.

The parties are at odds over a bill sponsored by Democratic Sens. Robert Menendez of New Jersey and Barbara Boxer of California that would make refinancing easier for millions of homeowners with Fannie Mae and Freddie Mac mortgages.

At a May hearing on the legislation, Republican Sen. Bob Corker of Tennessee raised a number of specific concerns about the refinancing bill, but he also expressed openness to supporting the measure if those issues were addressed.

In the nearly three months since then, negotiations between the Democratic-led Senate Banking Committee, chaired by Sen. Tim Johnson of South Dakota, and the committee’s top Republican, Sen. Richard Shelby of Alabama, have failed to yield tangible progress.

The negotiations have not faltered as a result of any specific Republican objections to the refinancing bill, according to sources. Rather, Shelby has been seeking an agreement by committee Democrats to allow votes on amendments to the bill on other housing policy issues.

Specifically, Republicans have expressed interest in securing votes on amendments that would address the reform of Fannie Mae and Freddie Mac, as well as reform of the Federal Housing Administration, according to sources. Another potential amendment that Republicans have raised in the talks would provide lenders a legal safe harbor if they meet the terms of a so-called “qualified mortgage,” a term that must be defined soon by the Consumer Financial Protection Bureau.

In the view of one Democratic Senate aide, Republicans have been trying to load up the Menendez-Boxer bill with extraneous amendments that go beyond the scope of the refinancing measure, some of which could doom the bill’s chances for passage.

A safe harbor amendment, which would draw opposition from consumer groups, is seen as particularly problematic for Senate Democrats, because it could peel off Democratic support for the refinancing legislation.

The aide said that Democrats have been making a sincere effort to work with Republicans on the bill, but that they believe Republicans want to deny the president a policy victory prior to the election.

“If they’re trying to stick a poison pill on it, that doesn’t do anyone any good,” this aide said.

But William Duhnke, the Banking Committee’s Republican staff director, said that his side is not going to enter into an agreement on behalf of committee GOP members that limits their ability to offer amendments to the refinancing bill.

“We’re willing to say, ‘Keep it to housing-related things,’” Duhnke said. “But apparently that’s a bridge too far for them when it comes to this particular bill.”

A senior Senate Democratic aide said that the Banking Committee has frequently limited amendments to the underlying legislation, and the measures Republicans want to consider are “outside the scope” of the refinancing bill.

“When we did our transit bill, there were only transit amendments,” the senior aide said. “When we did flood insurance, there were only flood insurance amendments.”

The Menendez-Boxer measure is not the only refinancing bill under consideration by the Banking Committee, but it is seen as the measure that is most likely to get 60 votes in the Senate.

Democrats control 53 seats in the chamber, but with Senate bills routinely requiring 60 votes for passage, they would need at least seven Republican votes to pass a refinancing bill.

A broader refinancing measure – also backed by President Obama and sponsored by Democratic Sen. Dianne Feinstein of California – is seen as less likely to attract Republican support because it would require the federal government to increase its exposure to the mortgage market.

The Menendez-Boxer bill would not require the government to assume more mortgage risk because it would only affect mortgages that are already backed by Fannie and Freddie.

The measure has drawn support from the housing industry, though the Federal Housing Finance Agency has raised certain concerns about it.

Facing a stalemate with Republicans, Senate Democrats are not without options. They could bring the bill straight to the floor of the Senate.

But without an agreement between Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell over which amendments will get votes, Democrats would face similar issues to those they face at the committee levels.

Even if the bill does pass the Senate, it appears unlikely to advance in the Republican-controlled House of Representatives. All along, the Democratic strategy has been to pass a Senate bill, and then to pressure the House to follow suit. With the clock ticking on the legislative year, what once appeared to be a long shot now looks like a Hail Mary.

President Obama refocused attention on the refinancing legislation at a White House news conference Tuesday, but even he seemed resigned to its likely demise.

“I would love to say that when Congress comes back – they’ve got a week or 10 days before they go out and start campaigning again – that we’re going to see a flurry of action. I can’t guarantee that,” Obama said.

With Congress unlikely to act, one Democratic senator is pressuring the Obama Administration to take unilateral action to help more homeowners refinance.

Sen. Jeff Merkley, D-Ore., argues that already appropriated housing funds could be used to launch pilot programs that would allow the government to buy underwater mortgages and provide a government-backed refinancing, though questions have been raised about the legal authority for such programs.

“The current gridlock in the Senate Banking Committee over refinancing legislation further underscores the need for the administration to use the tools and authorities it currently has to expand refinancing opportunities for Americans underwater on their homes,” a Merkley spokesman said.