This bill puts you, the taxpayer, at risk. It creates a new, permanent tax on mortgage business done by Fannie Mae and Freddie Mac. That tax threatens the solvency of those institutions and permanently punishes the shareholders, many of whom are institutional investors such as pension funds. The tax also reduces the amount of capital these GSEs can provide to the mortgage lending system in a moment of serious liquidity issues in the market.

Furthermore, the FHA is already projecting losses of over $4.6 billion from existing loans, which will wipe out 22% of its capital reserves. The Congressional Budget Office has estimated that participants in the FHA refinancing program will re-default at a rate of 35%. That is more than 1 out of every 3 loans refinanced through the program. We are putting more bad loans on an already broken program that can’t handle the risks it currently has. Is that a good idea? Of course not.

The author of this bill says it does not put the taxpayer on the hook. That is just not true. First, the tax on Fannie Mae and Freddie Mac will be paid by ordinary Americans, either through higher costs for future mortgages or through lower share prices in their retirement accounts. Is that fair? No.

Second, taxpayers are on the hook for any losses beyond what is being taken from the GSEs. Supporters of this legislation say that will not happen, but even their own numbers show just how likely it is for this program to be bankrupt in a few years. The CBO score for losses only fits within the GSE tax set aside for the program because they assume less than a third of the refinancing authority is used. I think time will prove all those assumptions wrong. The real question in my mind is when will we have to bail out FHA and who is going to pay for it?

This bill not only creates a dangerous new tax, but also uses that revenue to fund housing initiatives off the books of the Federal government. Under this bill, Fannie Mae and Freddie Mac will be assessed $500-800 million annually by the federal government. At least for the first year, that money will be used to cover the inevitable losses to the FHA from a bailout program for irresponsible and undeserving lenders and borrowers. The balance of that money will pay for a permanent slush fund for housing causes that will end up benefitting partisan groups, some of whom have recently had workers indicted for voter fraud. Additionally, there is an extra $150 million in counseling funds for these partisan groups, with even less accountability attached to those funds.

Another provision that has received little attention is $4 billion in emergency spending to buy foreclosed homes. That is nothing more than a gift to the banks, who by definition are the ones who have foreclosed homes to sell. These funds will have the perverse effect of increasing foreclosures because banks know there is going to be a willing buyer.

And if these tax and spend policies weren’t enough, this bill vastly increases an already overreaching federal bureaucracy. It nearly doubles the size of the FHA. It assigns important decision-making responsibilities with regard to this program to a board created of various agency heads, not Congress. It creates a new trust fund for "affordable housing" that is permanent and mandatory, outside the normal appropriations process. It requires loan originators to participate in a National Mortgage Licensing System and Registry. If you are a fan of big government, this bill definitely delivers.

But I am only skimming the surface. Unfortunately, it gets much worse. Make no mistake—this bill is a huge bailout for our nation’s lenders. The bill’s author has said this bill is going to help the everyman. Let’s take a closer look and see what you think.

The FHA program created by this bill refinances borrowers who have defaulted on their mortgages into government-insured loans. Just how much of those loans does the government insure? 100 percent. By creating this program, this bill limits how much lenders can possibly lose through mortgage transactions. When you invest in a business venture or in the stock market does the federal government cap your losses? No. But when it comes to big banks this bill willingly transfers downside risk of future losses right to the FHA and you, the American taxpayer.

As I said before, CBO estimates at least 1 in 3 mortgages refinanced under this bill will default again. Therefore, we have put in motion a scenario where taxpayers take the hit rather than the lenders who made that loan to a risky buyer who bought a house he could not afford, with a mortgage he could not afford. That is a bailout for the lender any way you slice it.

Probably the most glaring flaw is that the bill offers no way to keep out irresponsible and undeserving borrowers. In fact, borrowers are not required to show that they did not lie on their original mortgage application. To qualify for the bailout, borrowers get to sign a piece of paper saying they did not lie the last time they signed for a mortgage. This bill subjects the FHA to another wave of fraud that these no-documentation loans experienced in the primary market.

Borrowers who have not demonstrated an ability to pay can get a bailout because there is no requirement that borrowers have made any timely payments on their original mortgage. There is no income cap on eligibility for the program. As written, this bill would allow homeowners with houses valued at up to $550,000 to qualify for a bailout. In my county in Kentucky, which is one of the most expensive in the whole state, the median home price is $270,000 dollars. So this bill would give a bailout to people with homes valued at twice the median price. The American people are compassionate and often willing to help those in need. But I do not think giving a bailout to anyone who owns such an expensive home is fair to the average American. If you recall from the economic stimulus debate, my colleagues on the other side of the aisle vehemently opposed rebates for "rich" taxpayers. Now when it comes to bailing out banks that made risky loans, all income classes of borrowers can qualify.

The list of problems goes on and on. Mortgage professionals, people who by definition should have known better, can qualify for the bailout. People who defaulted on government loans before can come back to the trough. People who drained all the equity in their homes to buy flat screen TVs and new cars can qualify. This seems to me like a surefire way to set a program up for failure at a time when the FHA is reporting record losses.

The tax division of this bill also is flawed in several respects. In particular, it includes a $9.8 billion tax increase on small businesses that the Senate Finance Committee has never held hearings to review. This credit card reporting provision will result in a vast increase in paperwork for credit card companies and in millions of confusing and possibly misleading notices sent to the IRS and taxpayers.

Another provision that needs more work is the new limitation on the gain exclusion for the sale of a second home. This provision applies to any second property owned by the taxpayer, including an investment home. That means that taxpayers who lose their principal residence and move into a vacation home or investment property will also lose the benefit of gain exclusion. Is that the drafter’s intent? This legislation has not been well thought out. That scenario should be excluded, and I have no doubt it would have been if this bill had followed the normal course through the Senate Finance Committee.

There are a few provisions in this bill which are worthwhile and needed. Most importantly, the bill creates a strong new regulator for Fannie Mae and Freddie Mac. Congress has been trying to pass such a bill for years, and it is sorely needed and worth passing on its own. But the proponents of the bailout are holding those needed reforms hostage to get their bailout.

I and many others hoped to offer amendments to try to mitigate the damage this bill could do. Unfortunately we have been blocked from doing so. On a bill of this magnitude that is irresponsible and unacceptable.

One of my amendments would have made refinancing more affordable for the vast majority of homeowners by allowing them to write off interest points paid on a home mortgage in the year paid. For no good reason, the tax code requires homeowners to treat points differently, depending on when they are incurred. If they are incurred in an original purchase financing, the points are deductible, just as they would be under my amendment. If they are incurred in a refinancing, the points can only be deducted ratably, over the life of the loan. The difference is so significant that it will affect the ability of millions of homeowners to afford refinancing.

The whole idea of bailing out people who took a gamble and lost is an irresponsible way to spend the taxpayers’ money. I do not think the people back in Kentucky sent me to Washington to bailout speculators, Wall Street executives, and people who drained the equity in their homes to buy flat screen televisions and new cars.

This bill is simply the wrong kind of housing policy for Congress to be engaging in and is fatally flawed. Even the sponsor of the bill has admitted on the Senate floor that he is not even sure it is going to work, but he hopes it will. As the most deliberative body in the world, I think we can do better. In fact, we owe it to our grandchildren to do better. Who is going to bail them out when FHA is left with $300 billion in bad debt? On behalf of the people of Kentucky, this Senator is not buying this bailout bill.