US Senate leaders on Wednesday crafted a compromise bill to offer billions of dollars in refinancing and other help to homeowners and communities hit by the crisis in the housing markets. The accord was reached only after a controversial measure on bankruptcy law was dropped from the Democrats' version of the bill.
That measure sought to let judges alter mortgage terms for some troubled borrowers in bankruptcy proceedings. "We could not reach an agreement on that," Connecticut Democratic Senator Christopher Dodd, chairman of the banking committee and a key negotiator on the bill, told reporters.
Democrats were not ready to concede defeat on the bankruptcy measure, but it was unclear if they could muster the votes to amend it to the overall bill, Senate aides said. Without the bankruptcy provision "this bill amounts to dancing around a fire when Congress is supposed to be putting it out," said Wade Henderson, head of the Leadership Conference on Civil Rights, a coalition of human rights groups.
Estimated to cost from $15 billion to $20 billion, the bipartisan Senate bill still faces days of debate. If approved, it would have to go to the House of Representatives. As drafted now, the Senate bill would give the Federal Housing Administration (FHA) a bigger role in the mortgage market and offer tax measures to stimulate housing.
"We're still working on a lot of the particulars, but we plan to go to the floor tomorrow," said Alabama Senator Richard Shelby, senior Republican on the banking committee and a lead negotiator with Dodd on the bill.
With a possible recession looming, Congress is under pressure to help homeowners hit by rising foreclosures and falling home prices. Demands for action on behalf of homeowners have grown since the Federal Reserve last month engineered a massive bailout of investment bank Bear Stearns, which was hammered by bad subprime mortgage bets.
"We helped Wall Street ... But now is our opportunity to take care of people on Main Street," said Senate Majority Leader Harry Reid, a Nevada Democrat. The Senate bill attempts to ease the impact on communities of foreclosed homes by offering a $7,000 tax credit spread over two years to buyers of homes in or near foreclosure. To help people get out from under bad subprime loans, the bill calls for issuance of $10 billion more in tax-free revenue bonds to help troubled borrowers refinance their mortgages.
For companies hit by the housing slump, the bill extends a tax break to let companies credit losses from the past two years against taxes paid over prior profitable years. For 2008 and 2009, the net operating loss carry-back tax rule would extend to four years from the present two years. The Labourers' International Union of North America criticised the carry-back measure, labelling it a "handout for corporate home builders who helped cause the housing crash."
Another piece of the bill would give all US home owners who pay property taxes a standard deduction of $500 for single filers and $1,000 for joint filers. At present, only taxpayers who itemise may deduct state and local property taxes.
The bill seeks to expand the role of the FHA, a government agency that insures mortgages, by raising the limit on the size of mortgages it can back.
The FHA loan limit would rise to 110 percent of an area's median home price, with a cap of $550,000 and a 3-1/2 percent downpayment required from the borrower, under the bill. An economic stimulus package earlier this year temporarily raised the FHA loan limit to $729,500 from about $362,000 for the rest of 2008. The Senate's limit would be permanent.