Regulator funding, mortgage guarantees prove problematic in ‘minibus’

Advocates for tougher restrictions on Wall Street were also dismayed by the compromise figure.

"Not funding the CFTC is like taking the police off the streets in a high-crime area, which is what Wall Street is," said Dennis Kelleher, president and CEO of Better Markets. "The only way to prevent them from doing that again is to make sure that the CFTC has the funds to do its job."

Another point of contention was a provision that expanded the size of mortgages that could be guaranteed by the Federal Housing Administration (FHA).

Since the financial crisis tightened access to private credit, Congress agreed to temporarily increase the size of mortgages that could be guaranteed by government entities, which expired in October. But with the market still ailing, some lawmakers and housing advocates have called for an extension of the higher limits to boost it.

The move represents a compromise of sorts, as there had been a push to have those loan limits similarly increased for Fannie Mae and Freddie Mac, while Republicans called for no increases.

However, on Tuesday the annual independent audit of the FHA's finances is expected to reveal it is barely able to cover anticipated losses, and worse-than-expected results could require another taxpayer bailout. The Wall Street Journal reported the FHA's cash reserves have dwindled to the point that there is a "close to 50%" chance it could run out of funds in the next year.

Kingston said that report shows that Congress will have to act again.

"To go with FHA we thought that was a reasonable step but this [report] shows we are not through with it," he said. "One of the compromises as you know is to set the average level at the 2010 rather than 2008, which is more reflective of today's market."

Rep. Scott Garrett (R-N.J.) argued Tuesday that, given the FHA's precarious financial position, allowing it to guarantee more loans was "reckless."

"In light of this bleak outlook for the FHA, it makes no sense to increase the size of the loans the FHA can insure," he said. "With the potential for tens of billions of dollars in taxpayer losses, it is unconscionable to be even considering raising the conforming loan limit so that the American taxpayers can insure the mortgages for million dollar homes.”

"Including higher FHA loan limits on the heels of this audit report is beyond ridiculous," Club for Growth President Chris Chocola said. The conservative group is urging members to vote against the package due to the higher loan limits, saying it is scoring it as a key vote for its legislative scorecard. Another conservative group, Heritage Action, also intends to score it as a key vote for the same reason.

Garrett has been a leading voice among Republicans to wind down the government's role in the housing market. The Obama administration has similarly called for phasing out Fannie and Freddie, but so far no major initiatives have gained traction.

This post updated at 1:24 pm.