Views vary on crisis in housing

Back from the Memorial Day recess, House and Senate lawmakers must sort out important differences over housing legislation before they can help people struggling to hold onto their homes.

Facing a weakening economy as they head toward the November elections, Democrats and Republicans are under pressure to respond to the housing crisis. A plan to rescue strapped borrowers and to tighten the oversight of Fannie Mae and Freddie Mac cleared a key hurdle last month when it sailed through the Senate Banking Committee.

{mosads}But the Senate must resolve key differences with the House, particularly over tax incentives designed to prop up the housing market. A costly Senate tax package could become a casualty of a final deal on housing, some observers predicted.

“It would be the easiest to drop,” one financial services lobbyist said.

It is unclear if Senate Banking Chairman Chris Dodd (D-Conn.) is yet talking with Senate Finance Committee Chairman Max Baucus (D-Mont.) and his House counterpart, Financial Services Chairman Barney Frank (D-Mass.), about how to arrive at final legislation.

A Senate Democratic aide said Dodd expected the housing legislation passed by his committee to move to the floor by the second or third week of June. It is expected to clear the Senate, but it is unclear whether it will be bundled with tax measures the Senate approved earlier this year.

The Senate tax package contains breaks for home builders and other businesses along with a $7,000 credit for buyers of foreclosed properties. It also includes incentives for renewable energy producers that would cost $6 billion over 10 years.

The bill was harshly criticized by housing groups as doing too little to help troubled homeowners, and is opposed by the White House.

The House largely rejected the Senate’s approach in favor of a $7,500 tax credit for first-time homebuyers and boosting incentives for developers of low-income housing. It also offset its package — estimated to cost roughly $11 billion over 10 years — with revenue-raising measures. The Senate’s roughly $15 billion legislation contains no such offsets.

However, both bills would provide for an additional $10 billion in tax-exempt bond authority for local housing agencies to refinance distressed mortgages. That provision has the support of the Bush administration.

The House Committee on Small Business, which has no jurisdiction over tax matters, will hold a hearing Thursday on tax incentives to boost the housing market at which Realtors, builders and lenders will testify.

The increased bond authority and the tax credit for first-time homebuyers have the strongest chances of being passed into law, said Jaret Seiberg, a policy analyst at the brokerage firm Stanford Group.

“The rest is in play,” he said.

Meanwhile, lobbyists said that the Senate provision aimed at loss-making companies would likely not survive, in part because it has become too strongly associated with a special interest.

The National Association of Home Builders (NAHB) had lobbied hard for the provision. But it now seems to have shifted its focus to the tax credit for first-time homebuyers, which it called the “most effective way to halt the downward spiral in the housing market” in a recent press release.

The House and Senate are far closer together on legislation to rescue a segment of strapped borrowers and refinance them into more affordable mortgages backed by the government. Frank and Dodd both tied the plan to legislation to tighten the reins on Fannie Mae and Freddie Mac.

Under both versions of the legislation, a portion of Fannie’s and Freddie’s profits would be siphoned to establish a permanent affordable housing trust fund. But in the Senate bill, the fund would be diverted temporarily to cover the cost of the homeowner rescue.

In addition, the Senate legislation would raise the cap on the size of mortgages Fannie and Freddie can buy to $550,000, while the House bill would raise the limit to nearly $730,000.

The National Association of Realtors , which has been lobbying hard for the tax credit for first-time homebuyers, is also pushing for the higher loan limits. Congress lifted them temporarily to nearly $730,000 as part of economic stimulus legislation it passed earlier this year, but the new caps are set to expire at the end of the year.

Jamie Gregory, a top lobbyist for the Realtors, argues that the higher caps have helped to inject liquidity into a mortgage market roiled by the sub-prime mess.

“The concern is that, if we do go back to $550,000, we’re going to undo all that,” he said.