The negotiations over a final bill that would revamp the nation's housing-finance system feature many moving parts that are subject to intense lobbying and interest ranging from Wall Street to bank boardrooms to real-estate offices across the country.
The thorny questions include how much should loan limits for mortgage giants Fannie Mae and Freddie Mac and the Federal Housing Administration mortgage insurance program be increased? How much should a borrower be required to make on a down payment for an FHA loan? How to pay for a proposal to allow FHA to refinance shaky subprime mortgages? The answers will determine whether many borrowers will be able to obtain a home mortgage in the coming years.
Within such horse-trading, items can be pared back, dropped out or slipped in to reach a consensus. With that in mind, the House is presenting a unified front on a relatively minor tax provision that advocates say is crucial in expanding low-income housing -- one which Senate leaders have so far ignored and the White House has expressed skepticism about.
Advocates say the low-income housing tax credit plays a key role in the building and rehabilitation of affordable residences, providing impetus for the private sector to help in the construction of more than 1.5 million units.
Created under the Tax Reform Act of 1986, the credit reduces taxes for real-estate investors on specific projects, allowing them to either use the tax breaks or sell them to other investors to raise capital for construction.
With such inducements, developers are required to make rents no more than 30 percent of an area's median gross income, especially targeting the homeless, elderly and disabled.
"Other than the low-income housing tax credit, there has been very few federal dollars available to help build affordable housing," said House Financial Services Chairman Barney Frank. "What we have been doing for years is adding to demand for housing at the affordable level in ways that have done nothing on the supply. ... For the businesses that are trying to build for the low income, it's one of the best things we can do."
Staffers for Frank and Ways and Means Chairman Charles Rangel have been working on improving the credit since right after the Democratic takeover of the lower chamber in January 2007.
They wanted to upgrade and expand the credit and make sure that certain IRS rules and HUD funding did not make it less effective. Jim Miller, legislative counsel for the Affordable Housing Tax Credit Coalition, said the tax credit became less attractive because investors could not use it against the alternative minimum tax.
"Investment has severely dried up at a time when it is most needed," Miller said.
The two chairmen worked on a proposal to move through Ways and Means that boosted the amount each state could receive under the credit, up from $2 per person to $2.20. It also would vastly simplify the program, allowing it to be used against the AMT, permitting it to be used for more structures, and loosening bonding requirements. Those specific tax measures would cost about $1.3 billion over a 10-year period.
Miller said the effort was the textbook example of how a measure should be crafted: soliciting input from various sectors -- developers, builders, state housing authorities -- and working on a bipartisan basis to write the measure, which was packaged into a larger $11 billion housing tax package. He singled out Rangel aide Jon Sheiner, a former Clinton Administration HUD official, for spearheading the effort.
The result was impressive: Ways and Means approved it by a 35-3 vote and the House passed it on a 322-94 vote.
"There is definitely a lot of support in the House to expand the low income housing tax credit and improve the credit," said Ways and Means ranking member Jim McCrery, who noted that the provision has so far garnered no active opposition. "From that standpoint in isolation, yes, there is a lot of support for it."
But the White House has sent mixed signals on the provision. In a Statement of Administration Policy on the House bill, the administration focused its opposition on a provision what would provide a $7,500 refundable tax credit for taxpayers who become first-time homeowners this year. But it made no mention of the tax credit.
But in an April 9 letter to House Speaker Pelosi, Keith Hennessey, director of the White House's National Economic Council, wrote that the administration opposes language that would increase inducements for investment in rental property. "Congressional action should be focused on helping families remain in their homes, not on subsidizing the investments of rental property owners," Hennessey wrote.
The Senate did not include the provision in its $13 billion housing-tax package that passed in April even though Senate Finance Committee members Gordon Smith, R-Ore., and Maria Cantwell, D-Wash., have sponsored a similar version that has almost 20 co-sponsors. But a decision was made at the time of the Senate debate not to push for a floor vote on the measure and allow the House to do the heavy lifting.
The push is now on to reach out to Finance Chairman Max Baucus, and especially ranking member Charles Grassley, whose support will be crucial in whether it would be included in a final package. "Grassley is the key," said one House aide.
The only tax item that seems assured of inclusion in a final package is a provision to increase the use of tax-exempt bonds to housing finance agencies by $10 billion, including allowing them to be used to refinance certain subprime loans.
The item is included in both bills and supported by the White House. Negotiators will also have to resolve whether any tax provisions will be paid for. The Senate version does not, while the House bill has an offset.
Frank noted that Pelosi is a strong proponent of such affordable-housing efforts going back to her days as an Appropriations Committee member who helped lead the effort to make the tax credit permanent in 1993. To have such a big backer in a powerful role could very well make the difference.
"Speaker Pelosi is a very strong advocate for this, so you have a very strong united front in the House," Miller noted. "She's been a strong advocate for multi-family rental housing for a couple of decades."
This article appears in the June 14, 2008 edition of NJ Daily.
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