Congress Makes a Mess of Mortgage Rescue Bill

The News & Advance
Published: July 26, 2008

You can always count on Congress to take a relatively simply, straight-forward bill and load it up with goodies for just about every constituency under the sun. It doesn’t matter whether Republicans are calling the shots or if Democrats are in charge: It’s part of a politician’s genetic makeup.

The latest example of this egregious practice is the housing bailout bill moving through Congress right now. The most important aspects of the bill involve proposals to allow the federal government to step in to back up mortgage giants Fannie Mae and Freddie Mac, if needed. The quasi-private institutions buy up and back close to half of all the mortgages in the country. The most recent spate of bad economic news that rocked Wall Street emanated from reports that Fannie and Freddie weren’t as solvent as first believed.

Treasury Secretary Henry M. Paulson Jr. brokered a deal on bailout legislation between the White House and the Democrats running the House of Representatives. Initially, President Bush signaled he would veto the bill because of the extra fluff Democrats had attached to it; at Paulson’s urging, he reversed course.

The bill has passed the House and sailed throught the Senate in a rare Saturday session; now it’s on to the White House for Bush’s signature.

Propping up Fannie Mae, Freddie Mac and the banking industry — however distasteful — is something the government needs to do, as the health of the national and the global economies hang in the balance. The fact that these financial institutions got into the mess they’re in now after successfully lobbying the Republican Congress and then-President Bill Clinton in 1999 to repeal the Glass-Steagall Act of 1933 is immaterial at this point. What’s important now is steadying the global financial markets; Congress can then re-examine the topic of banking regulations as soon as that goal’s accomplished.

What Congress should not do — but already has, unfortunately — is load up a critical piece of legislation with goodies for their key affected constitutencies. Just consider the following:

*  First-time homebuyers will be eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. Buyers would have to repay the credit over the course of the next 15 years through their federal income tax returns, essentially making it an interest-free loan provided by the rest of us taxpayers.

*  Are you a homeowner who can’t itemize on your taxes and takes the standard deduction? Well, Congress has a goody for you, too. Now, you’ll be able to take an additional $500 deduction ($1,000 if you’re married and filing jointly).

*  An older homeowner who wants to take out a reverse mortgage? Well, lobbyists weaseled into the bill lower fees and increased maximum loan amounts.

*  Did you assume a mortgage on or before Jan. 1 this year? Hey, there’s a break for you, too. You might be able to cancel that mortgage and replace it with a 30-year, fixed-rate mortgage if the payments you’re dealing with are at least 31 percent of your household income.

It is galling, to say the least, for the taxpayers to be stuck with the costs of bailing out financial institutions that made stupid, risky decisions in pursuit of bigger and bigger pay-outs, especially since it was just 20 years ago that the savings and loan industry collapsed under similar circumstances. Still, the cost to the nation — and the tens of millions of individuals who didn’t make risky investments — would be far worse if the entire financial sector collapsed.

The individual gambler is another story, though.

The number of individuals who gambled on the housing market and lost is miniscule, compared to the number of those who didn’t. It is ridiculous that the American taxpayer will now be saddled with the cost of their bailout as well.

But, hey, it’s an election year, and this is Washington we’re talking about.