Rep. Ed Royce, the easy-going veteran Republican lawmaker from California, was mad. A bipartisan majority of the committee on which he sits, the House Committee on Financial Services, seemed eager to create a new federal program that, to Royce, amounted to "an experiment in socialism."

The experiment in question is a program committee Chairman Mike Oxley (R.-Ohio) inserted into legislation that would overhaul federal oversight of the troubled Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac). To win votes from Democrats, Oxley agreed to a provision designed by über-liberal Massachusetts Rep. Barney Frank, the committee's senior Democrat. Frank wants to require Fannie Mae and Freddie Mac to dedicate 5% of their after-tax profits-estimated to be $400 million in 2006, $600 million in 2007 and much more thereafter-to an "affordable housing fund." The funds would go to non-profits where the development or management of affordable housing is a "principal" (but not necessarily the only) purpose.

Royce attempted to strike this provision, prompting a heated exchange between a beleaguered band of feisty conservatives and a curious bipartisan coalition of liberal Democrats and Republicans. "Homeownership rates," Royce contended, "improve when real interest rates are low and when consumer incomes are improving." Frank's proposed fund, in contrast, amounts to federally mandated "giveaways" to a questionable array of organizations that will "waste resources" and "provide false hope for those wanting to increase homeownership."

Funding Leftists

Conservatives such as Representatives Jeb Hensarling (R.-Tex.), Scott Garrett (R.-N.J.) and Tom Feeney (R.-Fla.) were more direct. The pugnacious Feeney dismissed the fund as a "cash cow for the poverty industry" and said it was outrageous to require homebuyers to subsidize politically active leftist organizations that advocate policies with which they disagree.

Frank and others insist that none of the funds would find their way to advocacy groups, but federal officials would be limited in their ability to monitor these funds. One group that supports the fund reports that both Oxley and Frank have said the assets of the fund would not be regarded as federal funds.

So, to what organizations would these "non-federal" funds go? A cursory review of leftist websites suggests that one group eligible for a portion of the 5% after-profits tax is the notorious Association of Community Organizations for Reform Now (ACORN). The ACORN Housing Corp. was created in 1986 "to build and preserve housing assets" and claims credit for rehabilitating vacant and abandoned housing units and for helping low-income families find affordable housing.

A noble mission, no doubt. But the rest of ACORN's radical agenda might frighten the very homebuyers whose mortgages would be subject to this new tax. During the 2004 election season, ACORN became embroiled in voter-registration controversies in Ohio, Florida and Colorado involving potentially criminal activities. At the policy level, ACORN advocates "living wage" ordinances that would price low-wage workers out of the job market, tenant "protections" that would aggravate housing shortages and regulations on public schools that only a teachers' union would find attractive. The group says work requirements for welfare recipients are "slavery," and President Bush's proposal to reform the Social Security system is "a risky privatization scheme, designed to benefit the well-to-do and Wall Street interests." Not exactly the sort of organization to which the federal government should be steering so many private sector dollars.

Conservative Revolt

Though Royce's effort failed overwhelmingly in committee, 53 to 17, he seems to have awakened the slumbering conservative majority in the House. More than 30 members of the Republican Study Committee will send Majority Leader Tom DeLay (R.-Tex.) a letter warning him that "the money from [the affordable housing fund] could be used to finance third-party advocacy groups that have agendas far beyond simply increasing affordable housing for low-income Americans-agendas that are antagonistic to the free-market principles that we value." The House, these members insist, should not consider the reforms until the controversial affordable housing fund is removed.
 
Mr. Franc, who has held a number of positions on Capitol Hill, is vice president of Government Relations at The Heritage Foundation.