Senate (again) reaches mortgage rescue deal

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In talks led by Democrat Chris Dodd of Connecticut (pictured), Senate leaders have reached another tentative agreement on a voluntary mortgage rescue fund that would not immediately use taxpayer money, The Wall Street Journal reports this afternoon. Reuters reported a similar deal last week.

The Wall Street Journal: ‘The top two members of the U.S. Senate Banking Committee said Monday they have reached an agreement on a housing aid package that includes a regulatory overhaul for Fannie Mae and Freddie Mac.’

More: ‘The legislation combines the regulatory reforms for government-sponsored enterprises Fannie Mae and Freddie Mac with a proposal to use the Federal Housing Administration to offer up to $300 billion in federal guarantees to help refinance struggling borrowers into new mortgage loans. One compromise proposal discussed last week would use the money from an affordable housing fund created from Fannie Mae’s and Freddie Mac’s earnings to help pay for the FHA guarantee program.’

Analysis: Having Fannie and Freddie bear the cost of a new insurance program, and the risk of re-defaults on re-written loans, if that is the ultimate Senate plan, will probably satisfy some of the no-bailout crowd in Congress. But it loads those companies up with more risk, and marginally increases the chances that taxpayers will ultimately pay for Fannie and Freddie’s various mistakes and generosity. Relatedly, it’s not clear how Fannie Mae and Freddie Mac would use their earnings to pay for anything these days -- they reported a combined $2.65 billion in losses earlier this month.

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Photo Credit: AP