A compromise housing bill emerged late Tuesday that finally appears to bridge the gap between House and Senate banking leaders.

The House is expected to approve the 694-page bill Wednesday and quickly send it to the Senate.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) and the panel's lead Republican Richard Shelby (R-Ala.) signaled their intention to support it in a joint statement Tuesday night.

"We have been engaged in extensive and largely fruitful discussions with our counterparts in the House of Representatives, as well as Administration officials," the two senators said. "We remain optimistic about the prospects for this legislation."

Between meetings with House Democratic leaders and fiscally conservative Democrats Tuesday evening Rep. Barney Frank (D-Mass.) told reporters that he believed the compromise package would ultimately be signed by President George W. Bush.

"Nobody in America will agree with everything that we're putting in this bill, but I think enough people in America will find it acceptable so it will go to the president's desk and be signed," the Massachusetts Democrat said. "There have been a lot of accommodations for Senate staff and Treasury."

The House passed a version of the bill in May and Senate Banking approved a slightly different measure a couple weeks later. Negotiations to reconcile differences intensified this month after the Treasury Department asked Congress to amend the legislation to add provisions designed to shore up the government-sponsored enterprises Fannie Mae and Freddie Mac.

As lawmakers from both chambers and both parties had hinted in recent days, the bill would limit Treasury's request to increase its line of credit to the GSEs beyond $2.25 billion each, and to invest directly in Fannie Mae or Freddie Mac.

The compromise bill would curb such assistance by requiring it not push the national debt beyond its current limit. It also would give the GSE regulator the power to approve the compensation packages for Fannie and Freddie executives.

"The regulator will have total control over their compensation and it will go under the debt limit — those are two changes," Frank said.

While Frank had recommended that any Treasury equity stake be given senior preferred status to ensure the government is paid back first, on Tuesday he said he had been convinced that looser language was needed to avoid scaring off investors.

The bill now says the Treasury secretary should consider "the need to maintain the corporation's status as a private shareholder owned company [and] restrictions on the use of corporation resources including the limitations on the payment of dividends and executive compensation and any such other terms and conditions appropriate for such purposes."

But Treasury would have to get the GSEs' consent before making an investment.

"Nothing in this subsection requires the corporation to issue obligations or securities to the secretary without mutual agreement between the secretary and the corporation," according to the bill. "Nothing in this subsection permits or authorizes the secretary without the agreement of the corporation, to engage in open market purchases of the common securities of the corporation."

The bill also would limit Treasury by requiring it to "determine such actions are necessary to provide stability to the financial markets, prevent disruptions in the availability of mortgage finance, and protect the taxpayer."

The bill would give Treasury the power to extend the lines or make investments only through 2009, and it would give the Federal Reserve Board a broad consultative role in GSE oversight.
The House and Senate also reached a middle ground on the size of loans Fannie and Freddie may buy.

The House had pushed for a conforming loan limit of either $729,750 or an area's median house cost while the Senate had capped the maximum at $625,500. The compromise, which would go into effect when a temporary increase in the conforming loan limit expires at yearend, would put the loan limits at $625,500 or 115% of the median house cost, whichever was lower.

At its core the housing bill is designed to stem the foreclosure crisis by providing help to borrowers holding $300 billion of troubled mortgages. The Federal Housing Administration would insure these mortgages after lenders and investors agreed to reduce principal. The bill also would tighten oversight of the GSEs by creating a new regulatory agency.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.