The scaled-back proposal released by Majority Leader Harry Reid, D-Nev., and GOP leader Mitch McConnell of Kentucky contains an amalgam of ideas aimed at boosting demand for housing and helping homeowners saddled with subprime mortgages avoid foreclosure.
The plan contains $4 billion in grants to local governments to buy and refurbish foreclosed homes, new authority for states to issue bonds to be used to refinance subprime mortgages and a $7,000 tax credit for people buying new homes or properties in foreclosure.
"It is a robust package," Reid said. "This is good news for the American people."
CBS News correspondent Wyatt Andrews reports that both parties in Congress are taking heat over their inaction - letting average Americans absorb the loss of their homes, while losses at Bear Stearns, $29 billion worth, were being absorbed by the Fed.
"Wall Street has been helped, now its time to help Main Street," said Rep. Carolyn Maloney, D-N.Y.
But economists across the political spectrum were skeptical that the measure would have much practical effect to ease the wrenching crisis in the housing market and the wave of foreclosures spreading across the country.
"They're good steps, but they're small steps and certainly not big enough steps to solve the problem," said Mark Zandi, chief economist for Moody's Economy.com. "I don't think it's going to be enough to solve the housing problem, at least not in 2008."
Economist Peter Morici tells Andrews the package is underwhelming - but says Congress has to start somewhere.
"They see the need to stop the decline in housing prices and they also need to do political damage control," Morici says.
Meanwhile,Wednesday with a blunt message. Recession is possible, he said, and fixing the slump in home prices has to be a priority.
While supporters said the Senate measure would boost demand for housing, help people refinance adjustable-rate mortgages and help communities beset with abandoned homes, many economists cautioned that the measure's benefits would be modest - and would help banks and homebuilders while doing hardly anything for people facing foreclosure.
Reid did not release details, but staff aides described a bill containing elements Democrats have touted for weeks.
The measure also contains a provision dropped from February's stimulus measure that would permit homebuilders and other money-losing businesses to reclaim previously paid taxes, new disclosure requirements aimed at preventing unsophisticated borrowers from being duped by mortgage brokers, and additional money to provide counseling to people threatened with foreclosure and help them in negotiating with their lenders.
Republicans forced Democrats to drop efforts that Zandi and other economists said might have proven more effective in alleviating the crisis, including a controversial plan opposed by banks and their GOP allies to change bankruptcy laws to help borrowers trapped in subprime mortgages keep their homes.
Banking Committee Chairman Christopher Dodd, D-Conn., was also forced to leave out of the bill a plan to have the Federal Housing Administration guarantee perhaps $400 billion worth of refinanced loans if lenders reduce loan amounts to reflect reduced home values.
Republicans won a scaled-back version of a plan by Johnny Isakson, R-Ga., to provide a tax credit to people buying foreclosed or newly built homes. Isakson sought $15,000 in tax credits spread over three years - aimed at boosting demand in the slumping housing market - but GOP negotiators settled for a $7,000 credit awarded over two years.
Liberals and conservative economists alike questioned the merits of the idea, however, saying it would have relatively little effect on demand and that to the extent it would lift demand it would boost sales for banks who made bad loans and homebuilders who built homes despite signs that the market was slowing.
"There's ample incentive to buy foreclosed homes," said conservative economist William Niskanen, chairman of the CATO institute.
"Basically, you're giving money to builders that overbuilt and banks that issued bad loans," said Dean Baker, co-director of the Center for Economic and Policy Research. "It's giving money to the villains in this story."
Economists also questioned how effective it would be to have local governments buy and refurbish foreclosed homes. Advocates of the idea say it would stabilize neighborhoods and protect home values.
The measure will contain a broader rewrite of the FHA that reduces down payments on FHA-insured loans and raises the dollar limit on mortgages that FHA can insure.
The most costly element of the bill would allow homebuilders and other companies that are presently losing money to reclaim taxes paid up to four years ago instead of the two-year period currently permitted. Critics say the idea doesn't have anything to do with the housing crisis and that it would have little stimulative effect on the economy.
Altogether, the tax provisions in the measure would cost $10.8 billion over the next decade, though the short-term costs are considerably higher.
"These tax provisions will keep property values up, keep folks in their homes, and keep businesses afloat," said Finance Committee Chairman Max Baucus, D-Mont.