Leaders of the U.S. Senate Banking Committee said on Thursday they have agreed to the underpinnings of a housing rescue plan that will create a federal backstop for failing loans.
"We feel very optimistic we can have a very significant bill, a bipartisan bill, to present to the rest of our colleagues on the floor of the United States Senate," committee Chairman Christopher Dodd told reporters Thursday evening after a full day of negotiations.
The plan would create a $300 billion mortgage insurance fund administered by the Federal Housing Administration and a new regulator for Fannie Mae and Freddie Mac , the two largest U.S. sources of mortgage finance.
Under a deal hammered out on Thursday, Fannie Mae and Freddie Mac will partly finance the mortgage insurance program through contributions to a new affordable housing fund, industry sources close to the talks said.
Late Thursday, Dodd said he would reconvene the banking panel on Tuesday to finish its work on the bill.
The Congressional Budget Office in a report estimated the fund would cost $1.7 billion and finance up to 500,000 loans worth $85 billion.
The independent agency said it does not expect the fund to insure the $300 billion worth of loans that lawmakers would authorize.
Since last spring, the nation's mortgage market has been shaken by sinking home values that have erased billions of dollars of investor wealth.
An estimated 2 million foreclosures are forecast for this year.
Developing a mechanism to fund the program was seen as key to getting the rescue plan out of the Banking Committee and to the Senate floor for final approval, although that could still be a distant prospect.
Aides said Senate leaders are not yet engaged in the housing package debate.
Still, the formula did win the support of Sen. Richard Shelby, the banking committee's top Republican, who has said that he does not want taxpayers to foot the bill for the plan.
"We're together on a good concept of the whole thing. We're working on language right now, so be patient," Shelby told reporters Thursday afternoon.
Dodd and Shelby also agreed on language to create a new regulator for Fannie Mae and Freddie Mac, the government-sponsored enterprises that hold federal charters to nurture the housing market, the sources said.
Under the deal reached by Dodd and Shelby, Fannie Mae and Freddie Mac would direct money from a new affordable housing fund to backstop the mortgage insurance fund.
The sources said that in the first year, 100 percent of their contributions would go to the new FHA program.
That would fall to 75 percent in the second year and 50 percent in the third.
The formula was crafted by Sen. Jack Reed, a Democrat from Rhode Island, to satisfy Shelby, who objected to any taxpayer subsidy for the rescue plan, lobbyists said.
White House Declines Comment
The White House has threatened to veto a similar rescue package passed last week by the House of Representatives, partly because of the cost to taxpayers.
But the Bush administration has left open the door to discussions.
White House spokesman Scott Stanzel said on Thursday: "We're not commenting on any discussions we may or may not be having. If a bill comes to the president's desk it should meet the principles he has outlined."
The administration wants to ensure Fannie Mae and Freddie Mac face tougher oversight and want to see legislation retool the FHA with a system that sees riskier borrowers pay a higher mortgage insurance premium.
Both the Senate and House packages contain approaches to address those key White House goals.
But both packages also propose setting up the FHA mortgage insurance fund, an idea that the administration dislikes.