Housing Bill Bonus: Alleviate Debt Ceiling

Democrats in Congress are actively considering a plan to use a pending housing bill to deal with Washington’s own mortgage problem: the federal debt ceiling. 

The Treasury Department appeared open to the proposal Tuesday, since it would also expedite action this week on Secretary Henry Paulson’s rescue plan to shore up investor support for the two mortgage finance giants, Fannie Mae and Freddie Mac. But from a taxpayer’s point of view, it could be a little dizzying to see so much government debt and credit in a single package – especially when new budget numbers show next year’s deficit approaching $490 billion. 

The underlying housing bill already represents a multi-billion-dollar commitment to use the Federal Housing Administration to shore up depressed housing prices and prevent foreclosures. On top of this, Paulson is asking for 18-month authority for Treasury to extend credit to Fannie and Freddie or even purchase an equity interest in the two companies, which are a vital part of the secondary mortgage market. 

Paulson is hoping that he will never have to use the power, but the Congressional Budget Office said Tuesday that, given the state of the market, it remains a real possibility and could cost the government as much as $25 billion over the next two fiscal years. 

Add in the federal debt ceiling, and it’s a reminder of how deep in the red the government already is. The current debt limit of about $9.815 trillion will be exhausted this fall, and the Democrats’ new 2009 budget plan calls for raising the ceiling to $10.615 trillion — an $800 billion increase. 

The House has raised the ceiling already as part of approving the budget. But the Senate must still give its approval, and the housing bill would be a quick way to do so before November. 

From Paulson’s standpoint, it would solve another problem of appeasing Congress’s concerns about his rescue plan. To be effective, the secretary has argued that no cap should be put on his new authority, nor should it be subject to the debt ceiling. 

But Paulson appears willing to accept that condition now, since he would be assured that the ceiling will be raised to a level giving him enough room to assist Fannie and Freddie if needed. 

All this comes at a time when the White House budget office is preparing a mid-session review to be released next week. It will show a worsening deficit picture in 2009. While revenues have held more than many predicted for 2008, the deficit for 2009 is now projected to approach $490 billion, and that’s without counting the full annual cost of military operations in Iraq and Afghanistan.