New Housing Bill Criticized As Scant Help for Distressed
Friday, April 4, 2008
For anyone hoping to buy a home, sell one or hold onto the one they have, the $15 billion housing bill unveiled in the Senate yesterday may mean nothing more than a bit of extra cash in the pocket.
The housing bill, hastily cobbled together by Republican and Democratic leaders, would allow state and local property tax deductions this year of up to $1,000 for families and $500 for individuals who now can't deduct that money.
It also aims to spur demand for homes by providing a $7,000 tax break, split over two years, to anyone who buys a foreclosed home within a year of the bill's enactment.
But many consumer advocates say the Senate's "Foreclosure Prevention Act" does not live up to its name. They say it fails to deliver swift help to the most distressed homeowners and is of limited use to borrowers who may soon be in trouble.
"Anybody who gets money in their hands out of this bill will be happy, but that does not mean it will solve the larger social problem or larger economic problem," said Peter Morici, economist and business school professor at the University of Maryland.
Those who stand to benefit the most are home builders and businesses hit by the economic downturn. Through 2010, the entire tax package would cost about $28.8 billion, of which $25.5 billion would go to money-losing businesses in the form of tax rebates. They would give up other tax breaks, reducing the cost of the entire housing bill to $15 billion by 2018.
The House plans to offer its own version of the legislation, and Democratic leaders said they would focus on different priorities. "Hopefully, the balance will swing to be in favor of the families who are in danger of losing their homes," House Speaker Nancy Pelosi (D-Calif.) said.
For consumer groups, the biggest setback was the Senate's decision to strip the bill of a provision that would have allowed bankruptcy court judges to rewrite the terms of troubled loans for people who filed for personal bankruptcy. The Senate yesterday killed an effort to restore the measure.
The measure could have saved more than half a million borrowers from foreclosure through 2009, according to its supporters, by allowing judges to lower the interest rates of mortgages, extend the life of the loans or forgive part of the debts.
Of all the legislative proposals aimed at helping homeowners, consumer advocates said this one offered the most relief.
But the lending industry lobbied against it, saying it would increase borrowing costs and encourage some to use bankruptcy as a cheap alternative to refinancing.
Without the provision, "there's no guarantee of any help whatsoever for many of the clients I work with," said Nancy Ryan, a bankruptcy lawyer in Fairfax.