CHN: Mortgage Bill Passed by Senate Contains Little for Borrowers
On April 10, the Senate passed The Foreclosure Prevention Act of 2008, H.R. 3221, a bill that favors lenders and builders and does precious little to address the plight of struggling borrowers in danger of foreclosure. The bill passed overwhelmingly by a vote of 84 to 12. Senate Banking Committee Chairman Christopher Dodd (D-CT) said, “Quite candidly, what we’ve done here doesn’t quite live up to the title.” Provisions in the bill include:
- allowing 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 at a three-year cost of $25 billion;
- creating a $7,000 tax credit for buyers of foreclosed homes;
- providing a standard deduction of $500 for single filers and $1,000 for joint filers for homeowners who are non-itemizers who pay property taxes;
- permanently raising the value of homes that the Federal Housing Administration (FHA) is allowed to insure to $550,000;
- providing $4 billion through the Community Development Block Grant program to communities to buy vacant foreclosed properties to rehabilitate for sale or rent;
- providing $150 million for community groups to offer housing counseling and $30 million for legal service attorneys to help borrowers;
- authorizing $10 billion in new tax-exempt bond authority for state and local housing agencies to refinance troubled mortgages.
During bill consideration an amendment supported by many advocates to allow bankruptcy judges to renegotiate the terms of mortgages on primary residences was rejected. Some opponents of the measure contend that any such negotiations should occur directly between homeowners and lenders. However, in many cases the mortgages have been packaged and resold numerous times and the current mortgage holder is not accessible.
Citizens for Tax Justice (CTJ) and other analysts point out that that the most expensive tax provisions in the bill are likely to help large corporate homebuilders and yet do little for ordinary Americans who are affected by the dramatic downturn in home values. Some of the provisions are ill-designed, like the standard deduction for non-itemizers which provides no help to families without taxable income. The $7,000 tax credit for people who purchase foreclosed homes is likely to lead to higher prices for these homes. Some analysts are concerned that the bill’s provisions may provide some incentives for lenders to foreclose rather than negotiate new terms to enable owners to avoid loss of their homes. See CTJ’s analysis at: http://www.ctj.org/pdf/foreclosurepreventionact.pdf.
Next, the bill will move to the House where last week the House Ways and Means Committee approved an $11 billion tax package that rejects help for home builders and offers a $7,500 tax credit to first-time homebuyers rather than buyers of foreclosed properties. The House Financial Services Committee hopes to add to legislation passed by the Senate a provision allowing the FHA to insure and guarantee an additional $300 billion in refinanced mortgages that have been restructured by mortgage holders and lenders to a level that the borrower can reasonably be expected to pay. Committee Chairman Barney Frank (D-MA) and Senate Banking Committee Chairman Christopher Dodd (D-CT) both support this provision. (See 3/28/08 HNR: http://www.chn.org/humanneeds/080321b.html)