Friday, July 04, 2008

Housing Stabilization Bill on Hold in Senate

Senate efforts have stalled to pass a landmark bill that would address the housing and mortgage foreclosure crisis and strengthen the economy by fostering stabilization of the housing market. The fate of H.R. 3221, the Housing and Economic Recovery Act of 2008, remains in limbo because of a dispute over an amendment that would extend a series of energy-related tax provisions.

The dispute is significant enough that passage of the massive housing package may not take place until after the upcoming July 4 recess. Sen. John Ensign (R-Nev.) is pushing to offer the energy provision and said he was willing to use all the procedural tools at his disposal to try to force a vote on his amendment. The provision has no offsets and Democratic leaders have indicated that they will not accept the amendment in its current form.

The Bill passed the House of Representatives in May and is trying to work through the Senate House conference committee to address a few remaining differences. Once agreed to by both houses, the bill can be sent to the President before the month-long August recess.

The bill, which has the bipartisan support of both Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and Ranking Member Richard Shelby (R-Ala.), would give the Federal Housing Administration (FHA), Fannie Mae, Freddie Mac and the Federal Home Loan Banks much more active roles in helping families at risk of foreclosure.

The bill would authorize FHA to refinance up to $300 billion in distressed mortgage loans under a temporary “HOPE for Homeowners” program that would help an estimated 400,000 homeowners in danger of losing their homes by enabling them to refinance their mortgages into smaller, lower-interest conventional loans. In exchange for this assistance, homeowners under the program would be required to share any future appreciation in home value with FHA.

Lenders would also have to forgive a portion of the loan’s balance to qualify. In exchange, the lender holding the original mortgage would get a final payout guaranteed by FHA insurance regardless of the homeowner’s future ability to repay the refinanced loan.

The new program includes a number of conditions to ensure property speculators do not benefit, including a requirement that qualified homes must be owner-occupied.

The bill would also establish an Affordable Housing Trust Fund funded by Fannie Mae and Freddie Mac as part of the affordable housing goals Congress set for the government-sponsored entities. The HOPE for Homeowners program would initially be financed by the Affordable Housing Trust Fund, after which the funds would go solely to the construction of new affordable housing.

Cities and states affected by high foreclosure rates would also get help to mitigate the negative effects of the foreclosure crisis on neighborhoods and municipal budgets.

The bill would make a one-time emergency allocation of nearly $4 billion in additional Community Development Block Grant (CDBG) funds to cities and states to help stabilize neighborhoods distressed by rising rates of vacant housing caused by foreclosure. These funds, which would go only to cities with very high foreclosure rates, would be in addition to the funding provided for CDBG formula grants under the normal appropriations process.

The bill would also give Federal Home Loan Banks new authority to guarantee tax-exempt municipal bonds as an alternative to traditional bond insurance, giving cities a new competitive financing option for community and economic development and infrastructure improvement projects. The President has objected to both provisions, and has warned that their inclusion could lead him veto the bill.

One troubling provision is that the bill would provide a temporary new standard deduction for homeowners who pay state and local property taxes, but do not itemize their income tax deductions on their federal returns. Unlike the House-passed bill, which provides an unconditional deduction, in the Senate version, homeowners would be ineligible for the deduction if the state or local jurisdiction raises property taxes. House Democratic staffers have indicated the House will likely insist on the unconditional deduction when House-Senate negotiations begin.

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