Senate Considers Housing Stimulus Bill

April 1, 2008

On March 31, the Senate began debate on a second economic stimulus package bill, the Foreclosure Prevention Act of 2008 (S. 2636), intended to address the national housing crisis and help American families avoid foreclosures. Introduced by Senate Majority Leader Harry Reid (D-Nev.), the bill aims to keep families facing foreclosure in their homes, help other families avoid foreclosures in the future, and help communities already harmed by foreclosure to recover. In a procedural move, the Senate voted 94-1 to consider the Reid bill.

Meanwhile, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and ranking member Richard Shelby (R-Ala.) are working to craft their own housing-stimulus package that may be considered this week on the floor. The Dodd-Shelby measure could produce a deal on legislation that would revamp the Federal Housing Administration's (FHA) mortgage insurance program. The FHA bill is in conference but has been stalled over Shelby's reluctance to raise loan limits in the program to almost $730,000.

One of the tax provisions in the Reid bill would create $10 billion in tax-exempt bonds for use by state and local governments to help homeowners refinance their mortgages. The bonds will allow housing finance agencies to use proceeds from mortgage revenue bonds to refinance subprime loans, provide mortgages for first-time home buyers, and develop multifamily low-cost rental housing.

Reid's bill also includes a net operating loss (NOL) carryback provision--a popular business provision that was not included in the first economic stimulus package. For companies losing money in the economic downturn, this language could be particularly helpful by allowing corporations to apply excess net operating losses to tax returns from prior profitable years and receive any applicable refunds. Under Reid's bill, for 2006 and 2007 losses, the NOL carryback would be extended to five years (back to 2001), up from the two years currently in law.

Many of the bill’s provisions have broad bipartisan support, and leadership has expressed its willing to work with Republicans to address the housing issue.

Reid sought consideration of this legislation in February, when he first introduced the bill. At that time, however, Republicans were successful at blocking it amid a debate over amendments causing Democrats a failure to invoke cloture and end debate. Republicans oppose some of the spending provisions, including $200 million for at-risk home-owners counseling and $4 billion in Community Development Block Grants for cities to purchase and rehabilitate foreclosed properties.

In the meantime, President George W. Bush has not endorsed the Democratic bill, and instead has highlighted existing programs at the FHA. He has expressed his belief that the government’s role is to help lenders and borrowers work together to avoid foreclosures. The president has touted the FHA Secure program--which gives the FHA more flexibility to help homeowners refinance--and predicts it will help 300,000 families by the end of the year.