Senate Approves Housing Package
Friday, April 11, 2008
The Senate yesterday gave overwhelming approval to a modest package of tax breaks and other provisions aimed at easing the nation's housing crisis, while Democrats in both chambers pressed for more ambitious legislation to aid more than a million homeowners most at risk of foreclosure.
Emboldened by Republican cooperation on the Senate's first significant housing measure since thousands of subprime borrowers began to default last summer, Democrats vowed to act quickly to extend a lifeline to homeowners who owe their banks more than their homes are worth because of plunging house prices. The Bush administration and other Republicans are skeptical of that broader proposal, saying it could put taxpayer dollars at risk to bail out irresponsible borrowers. But Democrats said bolder action is needed if Congress hopes to stem the tide of foreclosures driving the nation toward recession.
"This bill is called the Foreclosure Prevention Act. Quite candidly, what we've done here doesn't quite live up to the title," Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said after the vote. "We've got more work to do. . . . We're not done, yet."
That may be an understatement. Neither House leaders nor the White House approve of the Senate measure, though the White House has not explicitly threatened a veto. The bill "has a lot more weaknesses than strengths," said White House spokesman Tony Fratto. "It's clear that housing legislation will not come to the president's desk in this form."
Still, the approval of the bill breaks a logjam over housing in the Senate, which had been deadlocked over a Democratic proposal to permit bankruptcy judges for the first time to modify the terms of a mortgage on a homeowner's primary residence. Republicans argued that it would cause lenders to raise interest rates and tighten eligibility requirements.
But then the Federal Reserve Board, with White House approval, arranged a $30 billion rescue of a major Wall Street investment bank, Bear Stearns. Democrats accused the White House and other Republicans of helping Wall Street while ignoring Main Street, and Republicans returned to Washington from their Easter break with constituents ready to make a deal.
Dodd and his GOP counterpart on the Banking Committee, Sen. Richard C. Shelby (Ala.), quickly hammered out a compromise that abandoned the bankruptcy provision. That measure yesterday passed by a vote of 84 to 12, with a group of mostly staunch conservatives voting no.
The bill jump-starts legislation to modernize the Federal Housing Administration, a top priority of the Bush administration that has already passed the House. It would expand the FHA's reach by permitting the agency to insure home loans worth as much as $550,000. The stimulus package recently signed by the president temporarily raised the FHA loan limit to $729,750 from $362,790, an increase that expires at the end of the year.
It also would provide $4 billion for cities to buy vacant foreclosed properties, $150 million for community groups to offer foreclosure counseling, $30 million for legal service attorneys to help borrowers and $10 billion in new tax-exempt-bonding authority for state and local housing agencies to refinance troubled mortgages. Most of those items are supported in the House.
The measure would create a $7,000 tax credit for buyers who purchase a foreclosed property within the next 12 months and a temporary tax deduction of up to $1,000 for families who cannot deduct their property taxes because they do not itemize on their federal taxes.
The most expensive item is a tax break for home builders and other money-losing businesses that would cost the federal government more than $25 billion the next three years. The measure would permit corporations that lose money in 2008 and 2009 to apply those losses to tax returns filed as far back as 2004 and claim immediate refunds.
Representatives of the home-building industry say the provision merely speeds rebates that would be claimed anyway; under current law, losses can be carried back for two years or carried forward for 20. According to the Congressional Budget Office, the cost of that provision diminishes over time. But consumer groups and some economists have criticized the provision as a corporate giveaway that should have no place in a measure that claims to help homeowners.