Supporters champion tax break for builders

The Senate began debate Thursday on a bill that leaders have pitched as much-needed relief for distressed homeowners, but would give an estimated $6 billion in tax breaks to help the home-building industry.

The tax-break provision, the largest expense in the multibillion-dollar measure, came under scrutiny as senators rejected a controversial amendment that supporters insisted would have tilted the bill more toward helping homeowners.

The amendment, offered by Sen. Richard J. Durbin (D-Ill.), would have let bankruptcy judges modify the terms of mortgages for primary residences. It was defeated by a 58-36 vote.

“Our goal ought to be preventing foreclosures, not just propping up home builders and big lenders,” Durbin said after the vote.

The proposal was opposed by mortgage lenders, the White House and a majority of Republicans, who contended it would raise borrowing costs for all home buyers.

A coalition that includes the Center for Responsible Lending and Consumer Federation of America said the bill was now devoid of “the single most significant step needed to help the 20,000 American families with sub-prime loans that are losing their homes each week through foreclosure.”

The bill is expected to clear the Senate next week, but the vote on the bankruptcy measure exposed a divide that will complicate efforts to pass more sweeping legislation.

House Speaker Nancy Pelosi (D-San Francisco) said the bill needed to be improved so “the balance will swing to being more in favor of the families who are in danger of losing their homes.”

The House Financial Services Committee next week will consider a proposal by its chairman, Rep. Barney Frank (D-Mass.), to grant the Federal Housing Administration expanded powers to back the refinancing of troubled mortgages by providing $300 billion in new loan guarantees.

Lawmakers from both parties have come under intense pressure to respond to the mortgage meltdown after the Federal Reserve helped engineer the rescue of investment bank Bear Stearns Cos.

The Senate bill is a compromise drafted by the top Democrat and Republican on the Banking Committee. It provides a tax credit for buyers of foreclosed homes, more than $1 billion to help states issue $10 billion in bonds to refinance sub-prime loans, and $4 billion to help communities, especially in California, hard hit by foreclosures.

It also includes about $100 million for counselors to help homeowners at risk of losing their homes, half the amount that Democrats had wanted.

The cost of the bill is still being calculated, but could exceed $15 billion.

The tax provision to aid the home-building industry 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.

The provision was sought by the National Assn. of Home Builders, whose political action committee ranked third among PACs in contributions to federal candidates in the 2006 election cycle, donating $2.9 million, according to the Center for Responsive Politics. Since the 2000 election cycle, the PAC has contributed $11.3 million to federal candidates and parties.

But earlier this year, the association’s PAC halted all campaign contributions to lawmakers, complaining that they “had not adequately addressed the underlying economic issues that would help to stabilize the housing sector and keep the economy moving forward.”

Defending the tax break, Jerry Howard, the association’s chief executive, said, “Putting stability into the housing markets helps homeowners retain their equity. Moreover, it will help stabilize the overall capital markets and therefore the economy. That helps everyone.”

Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, said the provision would allow builders to avoid selling land and houses at “distressed prices,” “improve business conditions for the eventual return of the housing market,” and “limit additional job losses” in the construction industry.

California Sens. Barbara Boxer and Dianne Feinstein, both Democrats, expressed disappointment with a provision in the bill that would permanently raise the amount of the maximum mortgage that can be backed by the Federal Housing Administration, saying it did not go far enough.

The measure would raise the limit to $550,000, from $362,790, but that is short of the $729,750 cap that was temporarily implemented in the economic stimulus package approved earlier this year. The higher limit vastly increased the availability of FHA-backed financing in high-priced states such as California.

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richard.simon@latimes.com