Senate Housing Bill's Benefits to Businesses Dwarf Benefits to Homeowners, Committee Finds

WASHINGTON – A measure billed as boosting the slumping housing market showers money-losing businesses with $25 billion in tax relief in the next few years but offers just $3 billion to homeowners.

The estimates released Thursday by the Joint Tax Committee, which explores for lawmakers the effects on the Treasury of tax legislation, lend credence to accusations that the measure helps businesses like home builders while doing little to help millions of families threatened with foreclosure.

The benefits to businesses also dwarf the $4 billion in the measure that would be provided to cities and towns to buy up and refurbish foreclosed and abandoned homes. The only direct help in the measure to homeowners threatened with foreclosure is $100 million to provide counseling to people threatened with foreclosure and help them in negotiating with their lenders.

The bill opened to unenthusiastic reviews among many Democrats. House Speaker Nancy Pelosi, D-Calif., promised improvements when the House takes up the measure and negotiates a final bill with the Senate.

"Hopefully the balance will swing more in favor of the families in danger of losing their homes," Pelosi said.

Debate on the measure began Thursday morning. The highlight was a 58-36 vote to kill a Democratic plan, opposed by banks and their GOP allies, to change bankruptcy laws to give judges the power to cut interest rates and principal on troubled mortgages to help desperate borrowers trapped in subprime mortgages keep their homes.

Proponents say that would give borrowers duped into abusive mortgages leverage in getting their loan terms adjusted.

But Republicans and eight Democrats, along with Connecticut independent Joe Lieberman, voted to scuttle the bankruptcy provision. Opponents argued that, despite modifications by its author, Sen. Richard Durbin, D-Ill., the proposal would lead mortgage lenders to ratchet up interest rates and thereby put another drag on the soft housing market.

The tax provisions in the measure enjoy sweeping support but deliver the bulk of their benefits to businesses — regardless of whether they're involved in the housing market — that are losing money in the current downturn.

Such businesses, including banks and homebuilders, would be allowed to deduct current losses against taxes paid up to four years ago, when times were profitable. The current limit is two years of such operating loss "carrybacks."

"It's just a giveaway" to home builders, said Sen. Judd Gregg, R-N.H. "If they built too many houses and they've got them on their books, they deserve to take the hit."

The four tax provisions would cost $28 billion through the end of 2010, but would deliver just $1 billion in immediate relief this year.

"When they unveiled the package, the main theme was ... 'help families keep their homes,"' said Bob Greenstein, who heads the Center on Budget and Policy Priorities, a liberal think tank. "Three of the four provisions would do little or nothing to accomplish that goal."

The bill also would provide a temporary $7,000 tax credit awarded over two years to people buying foreclosed homes in the year after the bill is enacted. It would cost about $1.6 billion, which assumes about 240,000 home buyers would benefit from the credit.

The measure contains a broader rewrite of Federal Housing Administration law that would permanently raise the dollar limit on mortgages that FHA can insure to $550,000 in the most costly real estate markets. The economic stimulus bill approved by Congress in February temporarily raised the limit from $362,790 to $729,750.

But Republicans rebuffed efforts by Democrats and the White House to reduce down payments on FHA-insured loans. Instead, the down payment requirement would be raised to 3.5 percent from 3 percent. Democrats sought to lower it to 1.5 percent.

The bill also contains new authority for states to issue bonds to be used to refinance subprime mortgages.