WASHINGTON -- The Senate Banking Committee approved legislation yesterday to remove statutory roadblocks that are keeping the federal government from selling off billions of dollars in nonperforming multifamily housing loans.

On a separate issue, the catch-all housing bill includes a provision that would provide more federal money to state and local governments under the HOME housing affordability program for the construction of multifamily units.

The bill, which now goes to the full Senate, faces an uncertain future because the House has made no move to draft similar legislation. Lobbyists said the House's inaction lessens chances for the bill to be enacted in the closing weeks of this year's legislative session.

The nonperforming loans the government is trying to sell were insured by the Department of Housing and Urban Development and were assigned to the agency by lenders when borrowers defaulted. Sen. Paul Sarbanes, D-Md., the chairman of the committee's subcommittee on housing and urban affairs, estimated that HUD-insured mortgages with a face value of $6.2 billion and representing 230,000 units are delinquent.

HUD has been unable to sell the loans because of a 1987 law that requires the department to offer subsidies to buyers of the loans under Section 8 of the housing code to ensure that the properties are preserved for low-income tenants. Although it legislated the requirement, Congress never appropriated the needed Section 8 funds.

The bill passed by the committee would ease the subsidy requirement by permitting HUD to use other methods to make sure the projects remain low-income.

Committee Chairman Donald Riegle, D-Mich., said the bill "increases the department's flexibility" in providing subsidies, and will "expedite the sales."

Sen. Pete Domenici, R-N.M., said the current subsidy requirements have to be changed; otherwise, clearing out HUD's portfolio "will take forever and cost well beyond our means."

Several committee members said that getting the loans off HUD's books will also help the properties and the tenants.

"HUD has become an involuntary landlord, and not a very good one," said Sen. Christopher Bond, R-Mo.

HUD wants to sell the troubled loans in pools to Wall Street investors, but state and local officials are hoping to persuade the agency to sell to them as well, so they can refurbish the deteriorated apartments built with the loans.

Much of the rehabilitation would be financed with tax-exempt multifamily housing bonds or 501(c)(3) bonds, the officials said.

The provision on HOME would end the program's bias toward the rehabilitation of existing housing units in favor of encouraging the building of new units.

The HOME program, created by a 1990 law, requires the federal government to match contributions that state and local governments make to low-income rental and home ownership projects.

Under current law, states and localities must contribute $1 for every $3 of federal funds received for new construction. But they are required to contribute only $1 for every $4 of federal funds received for projects involving substantial rehabilitation of existing units or rental assistance.

The bill approved by the committee yesterday would bring the matching requirement for new construction in line with rehabilitation and rental assistance, and thus make more states and localities willing to seek matching funds for new construction.

Increasing use of the HOME program for new construction could translate into increased bond issuance, lobbyists have said. That is because the HOME rules permit the value of certain tax-exempt bonds to count as a part of a state or local government's contributions under the program.

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