Mortgage companies are embracing it. The home builders who overreached in the housing boom stand to gain billions in tax breaks. And investors who snap up foreclosed homes will get a sweet tax credit.
But consumer groups?
They feel like the spirit of compromise on Capitol Hill has left them out on the curb.
As the Senate unveiled its bipartisan housing bill on Wednesday evening, it was clear that the path to passage meant ditching the provisions that might help hundreds of thousands of homeowners but would be seen as a “bailout” by Republican critics.
As a result, housing advocates are feeling steamrolled because a bankruptcy provision aimed at helping homeowners in foreclosure was removed from the bill. The compromise bill also slashed in half the foreclosure prevention funds proposed in the original Democratic bill.
Without empowering bankruptcy judges to reduce mortgage interest and principal for struggling homeowners, “this bill amounts to dancing around a fire when Congress is supposed to be putting it out,” Wade Henderson, president of the Leadership Conference on Civil Rights, said in a statement.
“When the government can bail out Bear Stearns — a company that made a fortune in bad mortgages — it can surely ease the strains of ordinary American homeowners who aren’t as sophisticated as a Wall Street firm and help them keep their biggest asset.”
The Senate will dive into full debate Thursday, and consumer lobbyists are likely to swarm Capitol Hill in hopes of changing the legislation.
Democrats did win some concessions in keeping a major community development block grant provision in the bill but, overall, critics believe the bill won’t do as much as some had hoped to help people on the verge of losing their homes.
“If you did a cost-benefit analysis, I think consumers might not fare better than industry,” said Brenda Muniz, legislative director of ACORN, the community housing agency. “Regardless of the fact that [the housing industry] got us into this problem, they still have a lot of power. We’re disappointed, but I can’t say we’re surprised.”
To be sure, Senate negotiators agreed to $100 million in foreclosure prevention counseling, a $10 billion expansion of tax-exempt bond authority for states to help with refinancing subprime mortgages, and a standard deduction for property taxes worth up to $1,000 for the 28.3 million people — including many elderly taxpayers — who don’t itemize on their federal income tax returns.
And Democrats will offer the bankruptcy measure as an amendment, though it’s unlikely to pass.
Senate supporters contend their Foreclosure Prevention Act will help hundreds of thousands of homeowners, and Democrats resisted the suggestion they caved on anything.
Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) described the deal as a “confidence-building measure” that sought to find common ground between Democrats and Republicans. “This is not a complete product. There’s a lot more that needs to be done in the coming weeks and months.” But, he said, the agreement “is a major step in the right direction of offering some real hope to people on Main Street.”
Dodd plans to hold hearings as early as next week on his proposal to use the Federal Housing Administration to ease subprime refinancings by offering as much as $400 billion in loan guarantees. Despite an impassioned plea to include it in the package, Dodd said he could not get his committee’s ranking Republican, Richard Shelby, to agree.
The housing package does include a more limited FHA-modernization measure that would increase the FHA loan limit and facilitate a limited number of refinancings.
There’s no agreement yet on what amendments can be offered, but Dodd said he is confident tha the bankruptcy provision will be in there. Nonetheless, the bill is still shaping up to have a generous pile of tax breaks and credits for Big Business — most notably home builders, who will be able to write off in 2008 and 2009 major losses going back four years. This provision would cost $6.1 billion over 10 years, with a much higher impact in the short term.
“It started off in a very good place for consumers, average Americans,” said Andrew Jakabovics, a housing expert for the Center for American Progress. “But it turned into something that was targeted at a narrow sector of the economy. … The net operating loss provision is basically a handout to the building groups.”
In total, the package’s tax provisions would cost $11 billion over 10 years.
The so-called carry back provision was a big win for the National Association of Home Builders. The group’s members have suffered greatly in the housing slump, and NAHB officials were bitterly disappointed that Congress didn’t include the tax break in its $168 billion economic stimulus package.
The tax break will help bring about market stabilization and prevent smaller builders from going out of business, said Jerry Howard, NAHB’s executive vice president and CEO. Without it, the biggest companies would likely be forced into a rush to sell off land, which would further erode land and house values, he said.
The tax provision has drawn criticism from the Laborers’ International Union of North America, which represents residential construction workers. The union characterizes the tax measure as a corporate handout for a handful of big firms that helped cause the subprime crisis and that made billions in profits off subprime-related projects.
“This bill will force American taxpayers who are already struggling with foreclosure, job loss and shrinking retirement savings to pay again for home builders’ reckless and unethical behavior,” LIUNA General President Terence M. O’Sullivan said.
“It’s a misnomer to say that this is only for the largest builders,” NAHB’s Howard countered. But helping the big guys would go far to stabilize the market, he said, “and right now, that’s the most important thing.”
Meanwhile, people who purchase houses in foreclosure in the next year would get $7,000 in tax credits over two years. Supporters, including the National Association of Realtors and the Mortgage Bankers Association, say the credit will entice buyers waiting for the market to bottom out to jump in and buy sooner. Foreclosed homes tend to pull down nearby values, so the proposal would benefit entire communities by restoring values across the board, lawmakers said.
As expected, the bill would provide $10 billion in tax-exempt bonds for local housing authorities to refinance subprime mortgages, as well as loans for first-time homebuyers and multi-family housing.
The National Council of State Housing Agencies estimated that a similar proposal authored this winter by Sens. John F. Kerry (D-Mass.) and Gordon Smith (R-Ore.) would provide approximately 80,000 new loans — but that includes first-time mortgages as well as subprime refinancings.