"They change their minds everyday," is how one lobbyist described to me the White House's thinking about whether to veto congressional housing legislation or work on a compromise. Last week, the House, including a fifth of Republican members, passed a bill that would allow some homeowners to refinance loans through the Federal Housing Administration if their lenders agreed to take 85 percent of the amount borrowed. President Bush promised to veto the bill.
I can tell you that many Republicans who were against the bill report getting an earful from constituents who view the measure as a bailout to folks who may have lied to get a cheap mortgage or were just plain financially stupid. On the other hand, Fed Chairman Ben Bernanke—as well as John McCain—has already put his imprimatur on the general idea.
Here's how the political team at Goldman Sachs sizes things up:
The House passed legislation that aims to refinance troubled mortgages and increase demand among first-time homebuyers. The President has threatened a veto. Nevertheless, federal intervention still appears likely. Although some recent data have exceeded low expectations, housing continues to worsen and consumer sentiment is poor. Politicians have taken notice. Most importantly, the policy differences aren't as large as rhetoric implies. Enactment of these proposals could marginally soften the decline in home prices, by reducing the number of foreclosures and increasing demand among first-time homebuyers. It could also reduce the downside risk to mortgage-related losses, but at a potential cost to taxpayers.
Dan Clifton over at Strategas Research sees things differently:
Despite passage of the legislation in the House of Representatives, we are reiterating our call that we do not expect [the] Frank/Dodd [legislation] to be signed into law anytime soon in its current form. We believe something can be done on housing given the importance of the issue but for the current time, Frank/Dodd is not likely to be signed into law.... It takes 60 votes for legislation to be enacted in the Senate, and the votes just simply are not there. Moreover, ranking Republican [Richard] Shelby does not support the provision and is absolutely furious that [government-sponsored enterprise] conforming loan limits were raised as part of the economic stimulus package.... It appears the House vote...was a game of chicken with President Bush by inserting a host of tax and spending provisions, unrelated to the core bill, which President Bush opposes. Absent the removal of these provisions, the probability of passage will remain low.... We expect the economy to begin to firm up as the stimulus checks reach taxpayers, which subsequently reduces the momentum for housing legislation. It's been 8 weeks since Bear Stearns, and each week passing by slows the momentum to "do something."
My take: I have been predicting such a bailout would pass, and I am sticking to that call.