Congress has been discussing the housing rescue bill since 2007, but a quickly crafted plan to shore up Fannie Mae and Freddie Mac over the weekend is causing this closely watched legislation to stall yet again.

The U.S. Senate approved its version of the housing rescue package last week, moving it back to the House to iron out the conflicts between the two groups. Many expected the strong expansion of government support for the two government-sponsored enterprises (GSEs), including an expanded line of credit at Treasury, authority for the Treasury to buy stock in Fannie and Freddie, and a commitment by the Federal Reserve Bank of New York to lend money if needed, would be swiftly incorporated into the housing bill.

But Republicans rebelled against the measure.

Democrats soon responded. “I was surprised to receive a letter from you today – dated yesterday – asking for an indefinite delay in enacting legislation that is not only important for the economy, and especially the housing sector of it, but also contains several very high priority items for the Bush administration,” Rep. Barney Frank (D-Mass.) wrote in an open letter to Rep. Spencer Bachus (R-Ala.) released late Tuesday. Among those “high-priority items” are the Treasury’s contingency plans for Fannie and Freddie and the “modernization” of the Federal Housing Authority, which includes raising the FHA loan limits. 

The political wrangling comes at a terrible time for the housing industry. Builders’ confidence in the housing market fell to an all-time low of 16 in July, indicating just how dire they think things have become.

Meanwhile, major mortgage finance firms Fannie and Freddie are being pushed and pulled in opposite directions by investors, regulators, politicians, and more. Just four months ago, the markets rejoiced at the lowering of capital requirements for Fannie and Freddie, which allowed the two firms to inject more capital into the foundering housing market.

Last week, though, worries about the companies’ solvency in an even deeper housing crisis caused their stocks to plummet and government officials to respond with pledges of support to calm the markets—only to have a group of Congressional Republicans protest the plan.

Even real estate experts admit they are confused by the current situation—and what will happen next. “I am just befuddled,” says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California. “Where this panic came from is just a complete mystery to me.”

Green, who specializes in real estate finance and urban economics, says Fannie and Freddie are being unreasonably punished by the markets for the subprime meltdown. According to the most recent monthly volume statements from the GSEs, he says, foreclosure rates on Fannie and Freddie loans range between less than one percent and 1.2 percent. In contrast, subprime mortgages are seeing foreclosure rates of 15 percent and up. When it comes to the relative risk profiles of the two categories of mortgage lenders and their practices, “we’re not even talking about remotely the same thing,” he says.

Alison Rice is senior editor, online, at BUILDER magazine.