Frank Sizes Up Bush Subprime Plan

House Financial Services Chairman Barney Frank (D-Mass.) weighed in this morning on the Bush administration’s plan to alleviate the nation’s subprime woes, which is set to be unveiled later today.

Frank welcomed the move as a recognition that there’s an appropriate role for government to play in stemming the housing problem and “that the market can’t be left entirely on its own.”

Don’t for a second think Frank doesn’t have his issues with the plan, though. He said it was a “grave error” for the plan to use homeowners’ credit scores to determine whether they deserve help or not. And Treasury Secretary Henry Paulson told Frank that they’re using a FICO score of 660 as their cutoff. Anyone with a better credit score will not be eligible for the bailout, Frank said.

That’s telling consumers if you followed policymakers’ advice and worked to keep your credit good, you don’t get this benefit, while those who were careless get a helping hand. Frank argued.

He also said he understands the plan does nothing about squashing pre-payment penalties, another flaw in his mind.

Frank also took the opportunity to chastise the Senate for its failure to move two key pieces of housing legislation that have been stalled there, echoing knocks delivered by the Treasury secretary. The two pieces of legislation are a bill to reform the so-called government-sponsored entities Fannie Mae and Freddie Mac and a measure to modernize the Federal Housing Administration.

The increasing inability of the Senate to function “is becoming a threat to government,” Frank said.

- Victoria McGrane