WASHINGTON – Senate Democratic and Republican leaders rushing to address the nation’s housing crisis reached agreement Wednesday on a package that would provide billions of dollars in tax rebates to the slumping home-building industry while offering little to homeowners threatened with foreclosure.
After working through Tuesday night to flesh out a bipartisan agreement, lawmakers unveiled a bill that rejects the most ambitious plans for aiding distressed homeowners, including a Democratic proposal to permit bankruptcy judges to modify the mortgage on a person’s primary residence.
Instead, lawmakers settled on a sharply scaled-back array of measures that would provide $4 billion in grants for cities to buy foreclosed properties, temporary tax breaks worth up to $7,000 for home buyers who purchase foreclosed properties, and new tax deductions for almost every American who owns a home. The package, which would cost about $15 billion over the next 10 years, also would jump-start stalled legislation to streamline the Federal Housing Administration, one of the top priorities of the Bush administration.
Families who cannot afford to repay their home loans – the group at the heart of the mortgage meltdown – would benefit mainly from $100 million to expand foreclosure counseling services and greater latitude for local housing authorities to use tax-exempt bonds in refinancing subprime loans.
Home builders and other businesses suffering losses in the flagging economy, meanwhile, would get the lion’s share of federal spending in the bill: $6 billion in tax rebates.
Senate Majority Leader Harry M. Reid, D-Nev., lauded the agreement as “a robust package” that is “good news for the American people.” But the lead negotiators on the deal, Senate Banking Committee Chairman Christopher Dodd, D-Conn., and the panel’s ranking Republican, Sen. Richard Shelby of Alabama, acknowledged that the legislation does not go as far as either side would like and represents only their first attempt at helping to resolve the nation’s housing problems.
“This is not a complete product, obviously,” Dodd told reporters. “But it is a major step in the right direction.”
Dodd called the package a “confidence-building measure” that sought to identify “common ground” between the two parties, which had until this week been gridlocked on the issue. At a joint news conference, Dodd and Shelby said they would work together in the coming weeks to see if they could reach agreement on broader measures, including a plan to permit the FHA to underwrite $300 billion in new, low-cost mortgages for struggling homeowners.
Still, some economists, local politicians and advocates for borrowers reacted with disappointment. They estimated that 8,000 families per day are sliding into foreclosure and said that without a major new mechanism for renegotiating mortgages, the package announced Wednesday is unlikely to help most borrowers struggling to keep their homes.
“It’s not clear what good it’s really doing,” said Dean Baker, co-director of the Center for Economic and Policy Research. “It’s a bipartisan effort not to help the right people.”
“This is a case of Congress thinking they have to do something, rather than actually doing something that will make a difference,” said David C. John, a senior research fellow at the Heritage Foundation.
Wednesday night, Senate aides were still working out details of the package, which is scheduled to be presented today on the chamber’s floor. Both parties will then be free to offer amendments, Dodd said. He added that Democrats will almost certainly try to restore the bankruptcy provision, which was the centerpiece of the housing bill they originally proposed in February.
That bill was strongly opposed by the White House and other Republicans, who argued that permitting judges to modify mortgages would cause lenders to tighten their standards and raise interest rates. At the time, many Republicans were reluctant to pursue any intervention in the housing market, and Senate Republicans last month blocked the initial Democratic bill.
Days after lawmakers left Washington for a two-week break, however, the Federal Reserve board stepped in to prevent the collapse of a major Wall Street investment bank, Bear Stearns. That prompted Democrats to accuse the White House and other Republicans of helping Wall Street while ignoring Main Street. When lawmakers returned to the Capitol this week, Senate Republicans and Democrats agreed to start talking.
The result was the bill unveiled Wednesday, a mixture of Republican and Democratic measures. While they lost the bankruptcy provision, Democrats were able to keep another of their top priorities, $4 billion in Community Development Block Grants to purchase foreclosed homes and help stabilize neighborhoods hit hard by declining home prices.
Democrats also got extra money to help as many as 250,000 families get counseling to avoid foreclosure, though their original plans for $200 million were cut in half. Another $1.7 billion in federal funds would be used to finance $10 billion in tax-exempt bonds for local housing authorities.
The bill also strengthens truth-in-lending laws and lengthens the amount of time a lender must wait before starting to foreclose on the homes of military veterans.
FHA modernization was a top Republican priority. Under the proposal, the FHA would increase its loan limit to $550,000 in the most expensive housing markets, giving more families access to low-cost loans.
Republicans proposed the temporary tax credit for home buyers, which would provide $3,500 a year for two years to buyers who purchase homes in foreclosure. Democrat Max Baucus of Montana, chairman of the Senate Finance Committee, offered the new property tax deduction, which would save families who do not currently itemize deductions as much as $1,000 on their federal taxes.
Both parties wanted to help home builders and other businesses. Under the agreement, corporations that lose money in 2008 and 2009 would be permitted to apply their losses to tax returns from as far back as 2004, making them eligible, according to a bill summary, to “receive any applicable refunds.”