The Senate today passed a housing stimulus package that would provide $4 billion so cities can purchase and rehabilitate foreclosed properties and approximately $13 billion in tax breaks to spur additional home sales and help homebuilders. The measure passed on an 84-12 vote, with all opposition coming from Republicans. It represents a compromise between Democrats who advocate a robust measure to address a dire housing market and Republicans who fear a large government bailout. “We don’t do as much as I would have liked to see us do,” Senate Banking Chairman Christopher Dodd said of the measure. The package also includes language that would overhaul the Federal Housing Administration’s mortgage insurance program by permanently increasing its loan limit to $550,000 and slightly bumping up its down-payment requirement to 3.5 percent.
The final bill included a manager’s amendment that would provide an additional $50 million for housing counseling — for an overall total of $150 million — and $30 million to the Neighborhood Reinvestment Corp. for legal assistance for at-risk homeowners. Those two provisions would be offset. It also would provide additional safeguards for FHA reverse mortgages used by seniors. The White House has expressed opposition to some provisions in the bill, although Senate Majority Leader Reid said today President Bush has told him he has not threatened a veto of the overall measure. “This is the beginning of the process,” Reid said.
Even with passage, Dodd continued his push for additional measures that are likely to be considered in a conference with the House, which is currently assembling its housing package. At the top of his list is his plan to allow the FHA to refinance up to $400 billion in new loan guarantees for borrowers who face an interest-rate reset on their mortgage that will make them unaffordable. House Financial Services Chairman Barney Frank has a similar bill that is likely to be included in the House package. Dodd held a hearing today on his proposal, saying it is necessary because the housing downturn has reverberated across the country, with home prices falling across many neighborhoods and a depressed property-tax base for counties and municipalities. “The ripple effects are severe and widespread,” Dodd said. But Dodd will have to pick up the support of recalcitrant Republicans, especially Banking ranking member Richard Shelby, who has concerns about spending $20 billion on the program and greater taxpayer liability if the refinanced loans were to fail. “We should proceed with caution so as not to make or exacerbate the mistakes that have brought us to this point,” Shelby said in a statement.
Dodd said that some GOP members, such as Sen. Judd Gregg of New Hampshire, have spoken positively of his bill and believes that he can reach a compromise with Shelby. Some advocates contend Dodd’s plan has sufficient safeguards, such as requiring lenders to write down the value of the loan to current market value and only having FHA insuring 90 percent of its value; the current FHA limit is 97 percent. Another 3 percent of the loan would be held in an insurance pool to cover losses. Dodd said he will attempt to move legislation to revamp oversight of Fannie Mae and Freddie Mac in coming weeks and that could be combined with his FHA bill in a bid to get both into conference with the House.
Meanwhile, presumptive GOP presidential nominee Sen. John McCain of Arizona today called for federal aid for homeowners who can no longer afford their mortgages, the Associated Press reported. In a speech in Brooklyn, N.Y., McCain sketched out a plan to help 200,000 to 400,000 homeowners trade burdensome mortgages for manageable loans. Aides estimated the plan would cost $3 billion to $10 billion.
This article appears in the April 12, 2008, edition of National Journal Daily PM Update.