WASHINGTON — After scrambling through the night and into Wednesday, Republican and Democratic senators reached a deal on a housing stimulus bill that would leave out some of the most aggressive measures, including a provision to let bankruptcy judges rework mortgages.
Details of the bill were announced late Wednesday, and lawmakers were expected to begin debate on the bill today. Passage of a final package is expected next week.
The housing bill would require enhanced mortgage disclosures; authorize $4 billion of block grants to let states buy foreclosed properties; modernize the Federal Housing Administration; and let state and local governments, in conjunction with housing authorities, ease restrictions on tax-exempt mortgage revenue bonds so that borrowers could refinance into cheaper loans.
Absent from the deal, however, were more far reaching proposals to give bankruptcy judges the power to rework mortgages and to let the FHA purchase mortgages worth more than the appraised value of a house after a substantial writedown by the lender.
The bankruptcy provision, adamantly opposed by the Bush administration and the financial services industry, was the crux of the fight between the political parties and was removed to ensure the broader housing package won bipartisan support.
Though Senate Banking Committee Chairman Chris Dodd's staff was said to be pushing to include the Connecticut Democrat's broader FHA plan to help stabilize home prices, sources said it met objections from Sen. Richard Shelby of Alabama, the panel's No. 1 Republican.
However, both measures are likely to come back to the forefront soon.
Observers said they expect Senate Majority Whip Richard Durbin to try to add the bankruptcy provision back to the housing bill as an amendment. On Wednesday morning the Illinois Democrat went to the Senate floor to blame mortgage brokers and lenders for killing the bankruptcy provision.
"Who opposes it? The big banks that created this mess in the first place," he said. "I'm sorry they had their day. They've had their chance. Most of them made plenty off of the mess, and their CEOs are going to escape unscathed from this terrible economy."
But it was unclear how much support such an amendment would need. Republicans were considering asking for a 60-vote rule that requires more than a simple majority to pass amendments. Sen. Durbin is highly unlikely to win enough votes for his amendment if that rule is put in place.
Even if it is not, lawmakers could opt for an alternative bankruptcy amendment that Sen. Arlen Specter of Pennsylvania, the top Republican on the Senate Judiciary Committee, is expected to offer. His measure would let bankruptcy judges alter the terms of a mortgage only with the lender's consent.
Without a bankruptcy provision, some consumer groups said the bill was a collection of half-hearted measures that would do little to correct the housing crisis.
"Without taking this important step, the Senate will have fallen short of taking the necessary measures to address the root cause of the foreclosure crisis and the greater economic crisis we have found ourselves in," said Josh Nassar, a lobbyist for the Center for Responsible Lending. "Additional aid and better disclosures will have some impact, but they will not get to the root of the crisis, and the foreclosure numbers will continue to escalate."
But Jaret Seiberg, senior vice president of financial policy for Stanford Washington Research Group, said the final package could still have some impact.
"Each provision helps at the margin, and the more you eat away at the margin, the more you start addressing the problem," he said.
Industry groups were largely supportive of the housing package without the bankruptcy provision attached. However, they did raise issues with a provision that would enhance mortgage disclosures, including increasing legal liability for lenders that do not comply. Lenders could be fined a minimum of $5,000 for each loan; the current maximum is $2,000.
Industry lobbyists said they expected some version of the disclosure requirements to pass but were hoping to amend them to reduce exposure.
The housing package also included provisions to modernize the FHA, but several elements appeared different from an FHA reform bill the Senate passed late last year. The original Senate bill, approved by a vote of 93 to 1, would have raised the limit at which the FHA could guarantee loans to $417,000 but would reduce the down-payment requirement by half, to 1.5%.
In contrast, the new housing package includes provisions to raise the FHA guarantee limit to $550,000 and raise the down-payment requirement to 3.5%. Sources said the down-payment hike was sparked by concerns from Sen. Shelby about the impact of a higher loan limit combined with lower down-payment requirements.
Observers warned that the agreement in the Senate was fragile, and that individual pieces could change. If they did not, the FHA reform provisions would differ from those in a House bill passed last year. That bill would raise the loan limit to $729,750 and allow the agency to insure loans with no down payment.
The agreement's other provisions include allowing businesses to carry back net operating losses over four years, instead of the current two-year limit, and authorizing $100 million for foreclosure prevention counseling.
