Senate Leaders Agree on Housing Stimulus Bill

MBA (4/3/2008 ) Sorohan, Mike
The agreement reached yesterday by Senate leaders to bring to the floor a $15 billion housing stimulus package is notable for lenders not only for what is included—but what isn’t.
Senate Democratic and Republican leaders agreed last night on basic elements of a bill to bring to the floor for debate today. The bill includes several key provisions, including FHA modernization, an increase in the ability of state and municipal housing agencies to purchase tax-exempt bonds; tax credits for people purchasing foreclosed homes or vacant new homes; tax breaks for home builders and others hit hard by the current slump; and an increase in funding for housing counseling.

What the bill does not include—prior to possible amendments—is a provision that would have allowed bankruptcy judges to modify the terms or primary mortgages, which faced fierce opposition from the Mortgage Bankers Association and other key industry groups, as well as many Senate Republicans and the White House (which threatened to veto a bill that has such a provision). MBA has led the fight against the provision, saying that such a measure would cripple the ability of lenders to securitize loans, as well as resulting in tighter underwriting standards and higher interest rates by as much as 1.5 percentage points.

In a joint statement, Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., called the agreement, forged by Senate Banking Committee Chairman Christopher Dodd, D-Conn., and Richard Shelby, R-Ala., a “solid, bipartisan start to keeping families facing foreclosure in their homes, helping other families avoid foreclosures in the future and helping communities already harmed by foreclosure to recover.”

“This package addresses the core issues of this crisis, including foreclosure mitigation, mortgage counseling, FHA modernization and homeowner tax credits, among other provisions,” the Reid/McConnell statement read. “We hope to quickly come to a consensus to move this bill to the floor, consider amendments to it and pass strong legislation that helps struggling homeowners and our economy as a whole.”

Dodd, speaking to reporters, acknowledged that both sides had to give ground to reach the agreement. "This is not a complete product, obviously. But it is a major step in the right direction," he said.

MBA Chairman Kieran Quinn, CMB, praised Senate leaders for reaching bipartisan agreement on the bill’s basics, saying the bill as written would provide help to homeowners facing difficulty in making mortgage payments.

"I applaud Senators Reid, McConnell, Dodd and Shelby for putting aside partisan differences to craft a housing stimulus package that will keep at-risk borrowers in their homes, which is something we all agree should be the top priority,” Quinn said. "A more modern and effective FHA, mortgage revenue bonds for state housing finance agencies, additional money for counseling—these are all things that will be of great help to struggling homeowners.

MBA supported many provisions in the bill, but had warned that the bankruptcy provision would be a deal-killer for its support. "I hope that senators will keep their eye on that goal, and not attempt to attach to the bill partisan provisions such as bankruptcy cramdown that would increase borrowing costs on all future borrowers and delay progress on this important bill," Quinn said.

The bankruptcy provision could be introduced as an amendment today, but would face stiff opposition from Republicans, not to mention the White House.

Under current provisions in the bill:

• FHA modernization would go forward, per previously passed Senate legislation, but with a permanent increase in the FHA loan limit to $550,000 with a 3.5 percent downpayment requirement;

• Mortgage revenue bond caps would increase by $10 billion to allow state housing finance agencies to refinance subprime loans, provide mortgages for first-time homebuyers and for multifamily rental housing;

• Purchasers of a home upon which foreclosure proceedings had begun would qualify for a $7,000 non-refundable tax credit on spread over two years that would not be available to newly built homes;

• $100 million would become available in additional funding for housing counseling services;

• Language would allow businesses to carry back net operating losses over a longer period—four years instead of two—so they can claim refunds of taxes paid in earlier years.