WASHINGTON — Lawmakers were scurrying Thursday to take action on measures to alleviate problems in the mortgage market before they adjourn next week, including attempting to pass bills to reform the Federal Housing Administration and grant tax relief to borrowers whose loans are reworked.
After months of delay on a bill to modernize the FHA to let more borrowers, including those with shaky credit, refinance into loans backed by the program, a tentative deal appeared to take shape Thursday.
Under the plan Sen. Tom Coburn — who has held up the bill for weeks over objections to a provision that would abolish a cap on FHA-insured reverse mortgages — would be granted floor time to debate the issue and offer an amendment that would keep the cap in place. Though the amendment is expected to fail, the Oklahoma Republican was apparently satisfied to bring attention to the issue.
It is not the only deal supporters of the legislation struck to win over Republicans opposed to the bill. Senate Banking Committee Chairman Chris Dodd and Sen. Richard Shelby, the panel's lead Republican, also agreed to add an amendment to the bill designed to ease objections by Sen. Elizabeth Dole, R-N.C. The provision would put a one-year moratorium on the Housing and Urban Development Department's plan to institute a risk-based premium structure on FHA loans.
Even if the FHA bill clears the Senate this week, however, lawmakers must still resolve differences between the House and Senate versions. Observers said with only a week left before Congress is set to adjourn for the year, it was unlikely there was enough time left to enact a final bill.
"Unless there was an agreement worked out within the next 24 or 72 hours in waiving the conference and removing some of the things that the Senate bill doesn't have … you are still talking January or February before an FHA bill reaches the president's desk, if you're lucky," said James Ballentine, a lobbyist with the American Bankers Association.
But Steve O'Connor, a government affairs manager with the Mortgage Bankers Association, said there may be just enough time left.
"FHA is still very much in play," he said. "It's recognized in both chambers that it's a high priority to help stabilize the housing market, so I think there is a reasonably good chance they would be able to work something out."
The House bill would raise the cap on loans FHA could insure in high-cost areas to a maximum of $729,750; the Senate bill would only raise those limits to be commensurate with the government-sponsored enterprises' conforming loan limit of $417,000. The House bill would also allow loans with no down payment to be backed by FHA, while the Senate would cut the current limit in half, to 1.5%. Other bills were also attracting attention on Thursday.
At a Senate Finance Committee hearing on ways to respond to the mortgage crisis, panel Chairman Max Baucus, D-Mont., said he would try to get the Senate to agree to a tax forgiveness plan championed by Sen. Debbie Stabenow that the House passed two months ago.
The Senate was expected to rush through the House version of the bill which would give homeowners a tax break on mortgage debt that was forgiven through loan modifications. Under current law, borrowers would have to claim the debt reduction as income and pay taxes accordingly.
President Bush called on Congress to temporarily change the tax code in August, but the House bill would make the change permanent.
Another idea that would fall under the Finance Committee's jurisdiction, but so far does not appear to be on the fast track, is an initiative to let state and local governments, in conjunction with housing authorities, open up restrictions on tax-exempt mortgage revenue bonds so that existing borrowers could refinance into cheaper loans. Currently such bonds are used to provide incentives for low-to-moderate-income borrowers' first-time home purchases. The tax-exempt status enables the bonds to provide capital for loans that carry interest rates that are 2 to 3 percentage points lower.
During the Finance Committee hearing Michael Decker, a senior research and policy director for the Securities Industry and Financial Markets Association, urged lawmakers to back the bond idea, which was proposed by the Treasury Department last week.
But while Sen. Ken Salazar, D-Colo., expressed interest in the bond measure, Sen. Baucus told reporters later he was concentrating on Sen. Stabenow's tax forgiveness measure for now.
Still, some financial services lobbyists said Thursday that the bond measure could be dealt with quickly under the radar. They said rumors were swirling that if an omnibus appropriations bill likely to come up for a vote next week includes a tax section, lawmakers could add the bond measure there.
