Behind the Senate deal on housing relief
The $15 billion compromise bill includes tax breaks for builders and buyers.
It took the Federal Reserve just 96 hours to react to the collapse of investment bank Bear Stearns. It's that rescue on Wall Street that's driving momentum on Capitol Hill for quick relief for the housing crisis on Main Street.Skip to next paragraph
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Senators got an earful from constituents over a two-week break, especially the disconnect between the Fed's $29 billion plan to facilitate the sale of Bear Stearns and the lack of meaningful relief for financially stressed homeowners. Within hours of a return to Washington, Senate leaders on both sides of the aisle put a stalled housing relief bill on the fast track, dropping cherished positions to do so.
The $15 billion housing package includes billions in tax breaks for home builders, block grants and tax breaks for the purchase of foreclosed properties, and $100 million in counseling for homeowners facing foreclosure.
"A month ago, you couldn't even get to a debate on the housing crisis," said Sen. Christopher Dodd (D) of Connecticut, who shuttled between the Senate floor and his banking panel's grilling of federal regulators and corporate executives over Bear Stearns.
What changed, he added, is that senators went home and heard from their constituents and watched what happened on Wall Street."
Last month, a vote to begin Senate debate over housing relief failed 48 to 46. The main sticking point was a provision – dropped in this week's bipartisan plan – that would have allowed bankruptcy judges to restructure primary home mortgages, including lowering the principal and interest rates.
Critics decry compromise
Consumer groups, unions, and civil rights groups cried foul as details of the bipartisan deal surfaced Wednesday night. Critics charge that the subprime mortgage industry marketed many of its loans to African-Americans and Latinos, including those with solid credit ratings. Under current law, bankruptcy judges can restructure loans for a yacht or vacation home, but can't touch primary residences.
"Both parties are trying to tout this bill as a major victory for homeowners, but it's largely a placebo in the absence of the bankruptcy provision," says Wade Henderson, president and CEO of the Leadership Conference on Civil Rights.
"Only by giving bankruptcy judges the discretion to look at the individual circumstances of each borrower can they really discern the degree to which the home owner has been treated fairly. Now, foreclosure proceedings move so quickly that, without the individualized review that a judge can provide, most homeowners are at the mercy of the accuracy of the material the lenders provide," he adds.
BIPARTISAN PLAN FOR MORTGAGE CRISIS
Senate Democrats and Republicans have agreed in principle to a $15 billion package to ease America's mortgage woes. Among the provisions:
STANDARD PROPERTY-TAX DEDUCTION
Homeowners who don’t itemize their tax deductions would be able to deduct $500 from their federal return ($1,000 for joint ﬁlers). Currently, nonitemizers can’t deduct property taxes.
Local housing authorities would get access to $10 billion of the bonds to reﬁnance subprime loans, provide mortgages to ﬁrst-time homebuyers, and ﬁnance multifamily rental housing.
HOMEBUILDERS’ TAX BREAKS
Builders with losses this year and next could use them to offset profits over the past four years, rather than the current two-year limit.
TAX CREDIT FOR BUYERS OF FORECLOSED HOMES
They could claim a $7,000 credit over two years.
FEDERAL INSURANCE FOR LARGER LOANS
The Federal Housing Administration would be able to insure mortgages up to $550,000, compared with $362,000 currently.
Programs to advise borrowers on the verge of default would be expanded by $100 million.
BLOCK GRANTS FOR FORECLOSED PROPERTIES:
Communities would be eligible for $4 billion in Community Development Block Grants to pur- chase and rehabilitate foreclosed properties.
SOURCES: Senate Finance Committee and Congressional Quarterly