Bush threatens to veto Frank mortgage rescue bill

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News item: President Bush today promised to veto the Frank mortgage rescue bill now before the House, saying the proposal to write down, refinance and guarantee mortgages ‘will reward speculators and lenders” who have suffered because of their own foolishness.

More, from The New York Times: Democratic Rep. Barney Frank, anticipating a veto pledge, said on Tuesday evening that a veto would signal that the president was abandoning efforts to help homeowners and would mean that ‘he’s stopped trying to govern.’

Analysis: The president is right, up to a point. The bill would reward speculators and lenders (It would offer lenders a better price for their distressed mortgages than the private sector is currently offering. That is a reward of sorts. It would also offer speculators new, cheaper mortgages -- by far a better deal than the private sector is currently offering them. Again, a reward of sorts.)

The larger question, though, is whether the Frank bill would work and how much it will ultimately cost taxpayers. The Congressional Budget Office has said it won’t put a floor under housing prices and won’t stop a recession from happening, but it will prevent some foreclosures.

My suspicion is that the ultimate cost to taxpayers of Frank rescue package will be significant, but will be dwarfed by the larger mortgage-related bills coming due soon. I’m talking about the likely cost to taxpayers of cleaning up the mess that Fannie Mae and Freddy Mac are very busy making right now. Again The New York Times: ’... some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion — the capital that their regulator requires them to hold — underpins a colossal $5 trillion in debt and other financial commitments.’

Remember, folks, the mortgage market in this country was effectively nationalized over the past six months. There’s Fannie and Freddie and the FHA, and that’s about it. The market is groaning under the weight of bad loans, and the odds are increasing that you and I will ultimately own them, whether we want to or not.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
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