Senate bill to help builders and homeowners

WASHINGTON — Under pressure to address the housing market meltdown, the Senate on Thursday passed a bipartisan aid package for builders and distressed homeowners, but the bill faces opposition from the House as being too generous to business.
The 84-12 Senate vote comes as congressional committees work on broader Democratic measures to provide hundreds of billions of dollars to help homeowners refinance into more affordable mortgages. The Senate action comes as home prices plunge, and economists say more than 2 million families are in danger of foreclosure.

Underscoring the increasing urgency of the issue, Republican presidential candidate Sen. John McCain of Arizona, who had resisted the idea of federal aid to homeowners, released a plan to help borrowers with high-cost adjustable-rate mortgages move into fixed-rate, 30-year loans. McCain's plan would apply to certain mortgages taken after 2005. Democrats called the McCain plan too limited, and promised more.

After passage of the Senate bill, Banking Chairman Christopher Dodd, D-Conn., said, "We're not done."

Said Dodd: "This bill is called the Foreclosure Prevention Act. Quite candidly, what we've done here doesn't quite live up to the title." Sen. Richard Shelby of Alabama, the top Republican on the banking panel, called the measure a good step, while expressing concern that Congress might move well beyond, to a taxpayer-funded bailout of people who "freely" used risky loans.

The Senate-passed bill includes $4 billion in grants to help localities buy and restore foreclosed homes, and a $7,000 income tax credit for buying foreclosed property. The bill beefs up consumer counseling efforts, provides more than $10 billion in mortgage revenue bonds to help refinance mortgages and expands the Federal Housing Administration.

One controversial provision, estimated to cost $25 billion through 2010, would allow home builders and other firms now posting losses to retroactively claim refunds against previous years' taxes.

Harvard economist Lawrence Summers said the business tax break would do little to stimulate activity and could harm the market. "Providing tax credits conditioned on initiation of the foreclosure process is likely to have perverse effects. … Foreclosures may be encouraged," Summers told a Senate hearing.

Dodd and House Financial Services Committee Chairman Barney Frank, D-Mass., want to let the FHA help refinance troubled borrowers into viable mortgages. In exchange for writing off part of the mortgage principal, a lender would receive a payment from the proceeds of a new FHA loan.