Homeowners’ bankruptcy creates a split

Unbowed by the Senate’s rejection of the measure, consumer groups are vowing to fight on for a bankruptcy change they claim is the most targeted remedy to the foreclosures spiking around the country.

Senators last week voted 58-36 to strip the measure from legislation aimed at propping up the ailing housing market. But its backers contend that economic conditions will worsen, eventually swinging the Senate in support of the change over the fierce opposition of the banking lobby.

{mosads}“As the Federal Reserve and the government is called upon to rescue more Wall Street firms that made reckless decisions, there’s going to be more of an understanding that saving families’ homes and neighborhoods is equally important,” argued Eric Stein, the top lobbyist for the Center for Responsible Lending, a group that advocates on behalf of struggling borrowers.

“The senators are going to come around,” he predicted.

 The Senate is poised this week to approve the housing legislation, dubbed the Foreclosure Prevention Act. Heavy on tax breaks for homeowners as well as for businesses incurring losses, the legislation has earned the ire of unions, consumers groups and other advocates for troubled borrowers, who complain that it does not do enough to help people at risk of losing their homes. Their chief objection is the absence of the bankruptcy measure, which would allow judges to trim the mortgage debts on homeowners’ primary residences.

The margin of support in the Senate for the measure is “much closer” than the vote to table it would imply, said the director of housing and credit policy at the Consumer Federation of America, Allen Fishbein.

“It would be premature to bury this proposal,” he said.

Yet with virtually no chance of getting the measure considered by the Senate this week, lobbyists are turning their attention to the House, which they believe will prove less hostile territory for the change.

House Speaker Nancy Pelosi (D-Calif.) last week said the measure “goes right to the heart of those in danger of losing their homes.”

Moreover, House Democrats are diverging sharply with the Senate on the tax component of the legislation.

Ways and Means Committee Chairman Charles Rangel (D-N.Y.) on Monday announced a markup of housing-related tax legislation. The bill has yet to be introduced, but a spokesman for the committee, Matthew Beck, said that it would not include a Senate provision allowing a $7,000 tax credit for buyers of foreclosed properties or another tax break for loss-making companies. And unlike the Senate bill, the House version would expand the low-income housing tax credit.

“Generally speaking, there was a concern that the House bill should do more to relieve at-risk homeowners,” Beck said.

Another big difference between the two measures: The Senate legislation contains nearly $12 billion in un-offset tax breaks. Tax legislation in the House would be fully offset to comply with House budget rules, Beck said.

Democrats have waived their pay-go budget rules twice since taking over the House — for relief from the Alternative Minimum Tax last year and for the economic stimulus legislation in January. Doing so a third time could seriously hurt their credibility on fiscal discipline, and likely antagonize the Blue Dogs, a group of Democratic budget hawks who could plausibly join with Republicans to block a bill.

Finding offsets for the tax breaks, however, will surely invite resistance from the business lobby.

“If the worry is the weakening economy, it would not make a lot of sense to hike taxes on the business community,” Bruce Josten, the top lobbyist at the U.S. Chamber of Commerce, argued.

In addition to pushing for the bankruptcy change, consumer groups are also training their fire on the Senate’s tax measures.

A senior adviser to liberal watchdog OMB Watch, Dana Chasin, said that the tax legislation in the Senate bill should be “about 80 percent scrapped.” He singled out the measure targeted at companies incurring losses as “the prime offender.”

Home builders suffering from the housing slump have been pushing hard for the $6 billion measure, which would expand a provision allowing companies to offset prior years’ tax bills with current losses.

Senate Majority Leader Harry Reid (D-Nev.) championed the measure in the Senate. But it is proving controversial, in part because home builders are seen as complicit in the mortgage mess by swelling the housing stock and underwriting masses of risky loans through their lending units.

Along with the Service Employees International Union, the Laborers’ International Union of North America is stirring up opposition to the tax measure, even though its 350,000 construction worker members would presumably benefit from a boost to the home building industry.

“We’re not trying to get rid of these companies, but you can’t just reward their bad behavior and ask for nothing in return,” said a spokesman for the union, Jacob Hay. The union took out print ads last week criticizing the provision and is sponsoring drive-time radio ads this week in Washington.

House leaders are diverging in other ways from the Senate in their response to the housing market’s woes.

Momentum is gathering in the House for a plan backed by House Financial Services panel Chairman Barney Frank (D-Mass.) to provide up to $300 billion in government guarantees for refinanced mortgages for troubled borrowers. Lenders would have to cut down the size of the loans first to make them more affordable for borrowers.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) backs a similar measure, although the Senate looks unlikely to accept the proposal during the debate on housing legislation this week.

In contrast to the bankruptcy change, which the banking industry abhors, lenders say they could swallow a solution along the lines of the Frank-Dodd proposal.

The top lobbyist for the American Bankers Association, Floyd Stoner, said that his industry was open to working with Congress on a range of measures to help distressed borrowers.

“We would put Chairman Frank’s proposal in that category,” he said.