WASHINGTON - Homebuilders and the mortgage industry are emerging as big victors in a bipartisan agreement reached by Senate leaders on legislation designed to limit the housing crisis.
The $15 billion Foreclosure Prevention Act of 2008, expected to be debated Thursday afternoon on the Senate floor, is drawing fire from critics who say it would do little to actually prevent foreclosures. The bill contains a $6 billion emergency tax break that would let companies use losses from 2008 and 2009 to offset profits earned over the previous four years, instead of the usual two-year timeframe.
That's good news for big homebuilders such as KB Home and Pulte Homes Inc., which have been saddled with massive losses over the past year.
Jerry Howard, chief executive of the National Association of Home Builders, said in an interview that the tax break is "very important to the building community." It will keep many small homebuilders out of bankruptcy, he said, and will prevent large builders from having to liquidate assets.
Other big beneficiaries would be Wall Street banks such as Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley. In fact, any company now struggling after years of healthy profits that pumped up their tax bills could benefit.
While Democrats and Republicans called the bill a productive bipartisan compromise, Dean Baker, co-director of the liberal Center for Economic and Policy Research in Washington, questioned whether the trade off was worthwhile for Democrats. "This is first and foremost helping the big villains in the story," he said.
It would be the second time in recent history that the government has amended this accounting tool, known as a "tax loss carryback," to stimulate the economy in the face of a recession.
Earlier this year, the National Association of Home Builders was so dissatisfied by lawmakers' actions — notably not including the tax provision in the economic stimulus bill_ that it snapped shut its political purse. NAHB said it would stop making contributions to congressional candidates "until further notice."
Since 1990, the trade group has given nearly $20 million to federal candidates, with 35 percent going to Democrats and 65 percent to Republicans, according to the Center for Responsive Politics. A trade group spokesman could not be reached to comment on whether it plans to open its coffers again if Congress passes the housing bill.
The bill also contains $4 billion in grants to local governments to buy and refurbish foreclosed homes, new authority for states to issue bonds to be used to refinance subprime mortgages — those made to borrowers with poor credit — and a $7,000 tax credit for people buying properties in foreclosure.
It includes an additional $100 million — half of what Democrats proposed — for credit counseling to help homeowners avoid foreclosure. And the agreement permanently raises the limit for loans backed by the Federal Housing Administration to $550,000. That amount had been temporarily raised to nearly $730,000 as part of the economic stimulus bill signed by President Bush in February.
"This is a focused, modest package that will get tremendous bang for the buck in terms of improving the housing crisis," Sen. Charles Schumer, D-N.Y. said in a statement Wednesday. "For sure, there is more to be done. But given the constraints of reaching a bipartisan agreement, this is a worthwhile step."
Schumer and Sen. Patty Murray, D-Wash. will attempt to amend the bill to lift the mortgage counseling allocation back to $200 million.
Homeowners facing bankruptcy, however, won't find relief in the proposal.
The mortgage industry fought fiercely to spike a provision to let bankruptcy judges rewrite the terms of distressed mortgages. It won that battle; the provision was left out.
The Mortgage Bankers Association said it would have hurt more borrowers in the long run by requiring higher interest rates and larger down payments to offset the risk of bankruptcy court intervention.
Steve O'Connor, senior vice president of government affairs at the trade group, praised the deal. "If bankruptcy reform were included, it would destroy the nature of the compromise," O'Connor said.
The absence of bankruptcy intervention was criticized by 15 civil rights, labor and consumer groups — including the Center for Responsible Lending and the Consumer Federation of America. In a joint statement, they called lawmakers' actions "a win for the financial services industry that brought us this mess."
Sen. Richard Durbin, D-Ill. was expected Thursday to try to get the bankruptcy provision back in the bill.
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