On May 8, the House passed two bills in response to the mortgage crisis. The first, The American Housing Rescue and Foreclosure Act (H.R. 3221) takes a broad approach to the foreclosure crisis. Bills already passed by the House or vetted in the House Financial Services and Ways and Means Committees with bipartisan support were packaged as amendments when H.R. 3221 came to the floor, replacing the version of the bill passed by the Senate in April. An overarching goal of the package is to help families facing foreclosure keep their homes, and help other families avoid foreclosure.
Among the bills added to the larger package was the FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830) adopted by the House Financial Services Committee on May 5. The bill opens the door to borrowers at risk of foreclosure, who cannot refinance their mortgages because the value of their home is now less than the mortgage, to negotiate with lenders on a voluntary basis to change the terms of their loan. It would allow the FHA to insure and guarantee refinanced mortgages that have been restructured by mortgage holders and lenders to a level that the borrower can reasonably be expected to pay. The lender holding the initial mortgage would receive a cash payment from an FHA-approved lender of less than the original mortgage but more than they could collect from the borrower. In exchange, lenders would be relieved of further risk from the mortgages and borrowers must share any profit from the resale of a refinanced home with the government.

Other bills added to H.R. 3221 expand affordable mortgage loan opportunities in FHA for potential homeowners who otherwise might turn to subprime lenders; strengthen the regulation of Fannie Mae and Freddie Mac, huge Government Sponsored Enterprises (GSEs) that provide a secondary market for mortgages loans, while raising their loan limits for single family homes in high cost areas; and increase the VA Home Loan limit for high-cost housing areas so that veterans have more homeownership opportunities.

Also added to H.R. 3221 was the tax package passed by the House Ways and Means Committee. It provides $11 billion in tax benefits, including tax credits to first-time homebuyers, a property tax deduction for non-itemizers, and an additional $10 billion in mortgage revenue bonds for states, and temporarily increases the low-income housing tax credit that helps create affordable housing options for families. Finally, an amendment to the bill was adopted which clarifies that the bill does not preempt state foreclosure laws. Many states have moved quickly to adopt pro-consumer laws that are effectively helping borrowers avoid foreclosure.

To the dismay of Rep. Barney Frank (D-MA), Chairman of the House Financial Services Committee and chief author of H.R. 3221 who made changes to the bill to accommodate the Administration’s concerns, President Bush vowed to veto the bill even before it went to the floor. Ultimately, the bill passed with bi-partisan support, but not with sufficient votes to overcome a veto.

A second bill, The Neighborhood Stabilization Act (H.R. 5818), also passed the House on May 5. The vote was 239-188 with 11 Republicans joining Democrats in support of the legislation. The bill authorizes a $15 billion federal grant and loan program to help state and local governments purchase, rehabilitate, and resell or rent foreclosed homes. Bill sponsor Rep. Maxine Waters (D-CA) estimates that the program would generate at least $38 billion in direct and indirect economic activity nationwide. It would help address the strain on state and local governments that are losing revenue due to plummeting housing prices causing an erosion of their tax base.

The Senate has failed to take further action to address the mortgage since passing its version of H.R. 3221 on April 10 that favors lenders and builders but does little to address the plight of borrowers. The centerpiece of the bill is a $25 billion tax provision which would allow homebuilders and other money-losing businesses to apply money lost in 2008 and 2009 to tax returns filed as far back as 2004 and claim immediate refunds. See April 14 HNR story at: http://www.chn.org/humanneeds/080414b.html. It will be a challenge for a narrowly divided Senate to agree to legislation that addresses the situation of homeowners at risk of foreclosure. While Senate Banking, Housing and Urban Affairs Committee Chairman Senator Christopher Dodd (D-CT) supports the direction the House has taken, Senator Richard Shelby (R-AL), the Ranking Member of the Committee who owns real estate and has strong ties to the mortgage industry, continues to resist many of these provisions.

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