Daylight for FHA plan in shadow of veto threat?

Fannie Mae and Freddie Mac would provide the funding to protect taxpayers against anticipated losses from a $300 billion expansion of FHA loan guarantee programs, under a compromise being worked out today between Senate lawmakers, Reuters reports.

The controversial plan for the Federal Housing Administration to guarantee refis for troubled borrowers -- approved by the House last week and part of Senate legislation backed by Sen. Chris Dodd, D-Conn. -- would be supported by an affordable housing fund that's envisioned in the GSE reform bill passed by the House last year.

The fund would raise about $500 million a year by hitting up Fannie and Freddie ("the GSEs") for an amount equal to 1.2 basis points of their outstanding mortgages.

Sen. Richard Shelby, ranking Republican on Dodd's Senate Banking Committee, is said to oppose an expansion of FHA loan guarantee programs at taxpayer expense.

While most of the program's costs would be funded by mortgage insurance premiums paid by borrowers, the Congresssional Budget Office has estimated that taxpayers might be on the hook for $1.7 billion in losses if the program helped 500,000 borrowers over the next five years. Having Fannie and Freddie foot the bill could assuage Shelby, sources told Reuters.

The Bush administration has threatened to veto the plan, put forward by Rep. Barney Frank, D-Mass., in March. Frank said today that Bush's veto threat was just that -- a threat -- and that he remains hopeful the Senate will reach a compromise.

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