Federal Bills Moves Through Congress

Housing Bills

The House Committee on Financial Services considered a number of bills this week aimed at stabilizing the housing market. The Committee passed two bills, H.R. 5818, the Neighborhood Stabilization Act of 2008, and H.R. 5579, the Emergency Mortgage Loan Modification Act of 2008. A third bill, H.R. 5830, the FHA Housing Stabilization and Homeowner Retention Act of 2008, is still being considered.

Several new statistics pointing to continued trouble in the housing market informed the Committee's debate this week: (1) according to the Mortgage Bankers Association, 900,000 households were in the foreclosure process during the fourth quarter of 2007, the highest number ever recorded and up 71 percent over 2006; (2) the Federal Reserve announced that 8.8 million homeowners will have zero or negative equity by the end of March 2008, representing about 10 percent of all homeowners; and (3) the State Foreclosure Prevention Working Group, a coalition of state attorneys general and state banking regulators, reported that 7 out of 10 delinquent mortgage borrowers have been unable to work out foreclosure prevention plans with their lenders.

1. H.R. 5818, Neighborhood Stabilization Act of 2008

The Neighborhood Stabilization Act, introduced by Housing Subcommittee Chairwoman Maxine Waters (D-CA), passed the Committee by a vote of 38 to 26.

The bill would establish a $15 billion, federally-administered loan and grant program for the purchase and rehabilitation of owner-vacated, foreclosure homes with the goal of stabilizing and occupying then as soon as possible. Half of the funds will be for loans and the other half would be for grants.

The funding would be distributed to the states based on a formula driven by a state's percentage of nationwide foreclosures over the last four calendar quarters, adjusted to account for the state's relative median home price. States could allocate funds to government entities and nonprofits for the purchase, rehabilitation, and resale of homeownership housing and the purchase, rehabilitation, and operation of rental housing.

In addition, states would be required to direct a formula-determined amount of funding to cities that are either, (a) one of the 25 most populous in the nation or (b) has a population of greater than 50,000 and a foreclosure rate that exceeds 125 percent of the foreclosure rate for the entire state.

Finally, at least 50 percent of the grant funding would be targeted to families at or below 50 percent of the area median income (AMI), and not less than half of the funding would target families at or below 30 percent of AMI. The bill also would explicitly prohibit discrimination against Section 8 voucher holders and provide eviction protections for tenants in foreclosed properties.

2. H.R. 5579, Emergency Mortgage Loan Modification Act of 2008
The Emergency Mortgage Loan Modification Act of 2008, introduced by Rep. Mike Castle (R-DE) and Capital Markets Subcommittee Chairman Paul Kanjorski (D-PA), passed the Committee by a voice-vote.

This bill provides a legal safe harbor for mortgage loan servicers making certain loan modifications. Mortgage loan servicers are responsible for collecting mortgage payments from homeowners on behalf of investors after a bank or other mortgage originator sells their loans to investors in the form of mortgage-backed securities. The bill responds to concerns that mortgage loan servicers are being discouraged from modifying loan terms to prevent foreclosures by the fear of potential lawsuits from investors that stand to lose some profit on the loan modification.

3. H.R. 5830, FHA Housing Stabilization and Homeowner Retention Act of 2008

The Committee began debate on the FHA Housing Stabilization and Homeowner Retention Act yesterday and is expected to vote on the measure next week. The bill, introduced by Chairman Frank, would permit the Federal Housing Administration to provide up to $300 billion in new loan guarantees to help refinance borrowers at risk of foreclosure into lower-interest, fixed-rate federally insured mortgages.

Senate Finance Committee Chairman Chris Dodd (D-CT) has announced his intentions to hold a markup on similar legislation in early May.

Senate Holds Hearing on Drug Waste in Water Supply

On April 15, the Senate Environment and Public Works, Subcommittee on Transportation Safety, Infrastructure Security and Water Quality held a hearing in which Chairwoman Barbara Boxer (D-CA) blasted the U.S. Environmental Protection Agency (EPA) for failing to identify and address the presence of pharmaceuticals in the nation's water supply as demanded by Congress 12 years ago. In 1996, through the Safe Drinking Water Act and the Food Quality Protection Act, Congress directed the EPA to develop a program dealing with chemicals that harm the natural balance of hormones in the body. The hearing was held in response to an investigation by the Associated Press that found a vast array of pharmaceuticals, including antibiotics, anti-convulsants, mood stabilizers and sex hormones, present in the drinking water supplies 24 major metropolitan areas, covering at least 41 million people in the United States.

Senate Holds Hearing on Water Infrastructure

On April 17, the Senate Energy and Natural Resources Committee, Subcommittee on Water and Power held a hearing to examine the age and condition of water infrastructure operated, maintained or owned by the Bureau of Reclamation. As part of the U.S. Department of the Interior, the Bureau of Reclamation helps the Western states, Native American Tribes and others meet new water needs and balance the multitude of competing uses of water in the West.

During the hearing, Reclamation Commissioner Robert Johnson said the agency estimated it would cost $3 billion over 20 years to conduct the necessary major repairs.

Current Bureau of Reclamation regulations require any federal money borrowed for operation and maintenance to be paid back within the same year. Sen. Jon Tester (D-MT) called the lack of flexible financing "prohibitive" for communities, noting that even major repairs are often deemed as operation and maintenance costs. Tester called on the federal government to finance Reclamation's facilities, asserting that in the few projects whose costs exceed the means of local beneficiaries, the agency should still pay. Sen. Larry Craig (R-ID), however, said that local communities should assume more, but not all, of the financial responsibility.