Senate passes housing relief bill

WASHINGTON – The Senate today passed legislation aimed at addressing the nation’s housing crisis, setting the stage for difficult negotiations with the House, which is working on a more sweeping measure tilted more toward aiding homeowners at risk of losing their home and propping up the struggling real estate market.

The measure was overwhelmingly approved, a sign of Congress’ election-year anxiety over the wave of foreclosures and falling home prices that have contributed to the economic downturn.

But the bill has drawn widespread criticism. Consumer groups complain it doesn’t do enough to aid distressed homeowners. The White House has been unenthusiastic. Sen. Barack Obama, who is seeking the Democratic presidential nomination, points to the “heavy hand of special interests” in shaping the bill.

While Senate Democrats said the “Foreclosure Prevention Act” was they best they could pass in a narrowly divided chamber and in short order, their fellow Democrats in the House are working on their own version of a rescue plan.

“Quite candidly, what we have done does not quite live up to the title,” Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, acknowledged. “We do some things but not enough.” But he pledged that more relief measures will follow.

The Senate bill would provide tax breaks to home builders and buyers of foreclosed properties. It would provide $4 billion for local governments to buy and fix up abandoned properties, a provision that is intended to prevent neighborhood blight but has been assailed by the White House as a bailout for lenders and speculators.

The Senate measures includes a number of provisions that enjoy support on both sides of the Capitol and are likely to end up in any final bill that emerges from House-Senate negotiations.

These include state authority to issue an additional $10.9 billion in tax-exempt bonds to refinance sub-prime mortgages and provide mortgages for first-time home buyers, providing $180 million for counselors to help borrowers avoid foreclosure, increasing the length of time a lender must wait before beginning foreclosure proceedings on a home owned by returning war veterans, and permanently raising the amount of the maximum mortgage that can be backed by the Federal Housing Administration.

House leaders are working on a measure that would provide $300 billion in federal guarantees to refinance troubled mortgages and $11 billion in tax breaks to stimulate the housing market and help homeowners avoid foreclosure. Unlike the Senate, the House Ways and Means Committee did not provide a tax break for home builders but instead has proposed an interest-free loan of up to $7,500 for a first-time home buyer.

The Senate measure’s 84-12 approval was a sharp turnabout from a few weeks ago when lawmakers were mired in partisan gridlock over how Congress should intervene in the housing crisis, if at all, to stem the rising tide of foreclosures. But the Fed Reserve’s rescue of Wall Street investment banker Bear Stears last month created a new sense of urgency among lawmakers from both parties to show they were doing something to respond to the housing crisis.

Sen. Richard Shelby, top Republican on the Senate Banking Committee who worked with Dodd in drafting the bipartisan compromise, signaled that it will be tougher to produce more sweeping legislation. He warned colleagues that he will scrutinize any new proposals that put taxpayers at risk and “expose those who made prudent financial choices for the risk created by those who didn’t.”

Congressional Democratic leaders and the White House remain at odds over how far government should intervene in the housing crisis.

The administration Wednesday proposed loosening the eligibility requirements for its FHASecure program, under which borrowers can apply to refinance unaffordable mortgages into fixed-rate government-insured loans. The administration claims that as many as 500,000 borrowers could be helped this way, far fewer than the 2 million Democrats say their refinancing plans would help.

Obama, of Illinois, was among those criticizing the Senate measure, calling the bill a “start” but complaining about the “heavy hand of special interests” that led to the “unnecessary tax breaks for the profits enjoyed by home builders during their boom years, and on keeping out a change to our bankruptcy laws that would remove preferential treatment for mortgage lenders.” The Senate earlier defeated a measure that would have allowed bankruptcy judges to modify mortgages for primary residences.

The tax break to aid the home-building industry, projected to cost $6 billion over 10 years, would allow builders and other businesses affected by the housing slump to charge off losses this year and next against taxes already paid for the four previous years, instead of the two years currently allowed.

Sen. Arlen Specter (R-Pa.) said during the debate that the bill was “not half a loaf” but “a crumb.” But he voted for the bill anyway.

Bush administration officials, in a letter to senators, expressed opposition to a provision of the bill to offer a $7,000 tax credit to buyers of foreclosed homes, saying it “could directly harm responsible homeowners as they enter the sellers’ market” by forcing them to “further lower their selling price to compete with the newly tax-advantaged properties.”

But Sen. Johnny Isakson (R-Ga.), the provision’s chief advocate, said the tax break would “inspire buyers to get back into the market to absorb this standing inventory of homes that are foreclosed or pending foreclosure.”

A number of House Republicans – including some California Republicans whose districts have been hard hit by foreclosure – want Congress to move cautiously.

“We should be very careful,” said Rep. John Doolittle (R-Roseville.) “The best thing we should do is let the free market work and it will all sort out.”

Reps. Wally Herger of Chico and Devin Nunes of Visalia, the two California Republicans on the House Ways and Means Committee, voted against the tax package passed by the panel on Wednesday. Herger said the package “could serve to distort incentives when the market needs to correct itself. It could do more harm than good, and would unfairly pass on costs to other Americans who have played by the rules, acted responsibly and are honoring their mortgage obligations.”

Senators added to the housing measure an extension of tax breaks to promote energy efficiency and development of alternative energy sources, such as the sun and wind. The tax breaks have been stalled by a dispute over whether they should be paid for by repealing oil industry tax breaks. But in not providing a way to pay for them, the provision is likely to face trouble in the House from deficit hawks.

California Sens. Barbara Boxer and Dianne Feinstein, both Democrats, voted for the Senate bill. All the no votes were cast by Republicans.

richard.simon@latimes.com