Senate Forges Bipartisan Deal to Help Housing

WASHINGTON — Senators on Wednesday reached bipartisan agreement on legislation to help the sinking housing sector, primarily by bestowing tens of billion of dollars in tax breaks.

Although details had not been announced by early evening, leaders earlier in the day hailed the deal and promised quick passage following a debate in coming days over contentious amendments.

The Senate soon will "pass strong legislation that helps struggling homeowners and our economy as a whole," Senate Majority Leader Harry Reid and Senate Republican Leader Mitch McConnell said in a joint statement.

Democrats are expected to push a controversial amendment that would help roughly 600,000 struggling homeowners avoid foreclosure. They also are expected to try to include an overhaul of the Federal Housing Administration that would increase the size of mortgages it could guarantee.

But such amendments, which may be offered on the Senate floor, likely would need a 60-vote supermajority in order to be included in the final package. That would make their passage far more difficult than if a simple majority of 51 votes were required.

The compromise package was worked out rapidly after Congress returned Tuesday from a two-week recess. Over the break, many were asked why the federal government was rescuing Wall Street firms, but doing little to aid ordinary homeowners in trouble.

As it stands now, the package as described by Senate aides includes help for:

— Homebuilders. They would be allowed to increase to four years, from two, the time they could apply losses in 2008 and 2009 to past tax bills. That would help builders offset profits made during boom times with losses incurred during the downturn.

— Home buyers. A new tax credit of up to $7,000 over two years would be made available to people who buy foreclosed homes.

— Non-itemizers. Homeowners who do not file itemized income tax returns could claim an additional standard deduction for the amount of local property taxes paid subject to a $500 cap for single filers and $1,000 cap for joint filers.

— Neighborhoods. The government would create $10 billion in new bond authority for refinancing subprime mortgages, and tax credits for buyers of homes in foreclosure or for new, unsold homes.

— State and local governments. State and local governments would get $4 billion in grants to help buy and rehabilitate foreclosed homes.

— Borrowers. The federal government would spend another $200 million to fund counselors to help homeowners at risk of foreclosure, and expand disclosure requirements to give borrowers more information about mortgage terms.

Despite agreement on those provisions, Democrats and Republicans appear to remain divided over an amendment giving bankruptcy judges the power to rewrite terms of existing subprime and nontraditional loans.

By lowering the interest rate, extending payments or even cutting the principal, judges could make mortgage payments more affordable for homeowners in Chapter 13 bankruptcy proceedings. Homeowner advocacy groups say this provision is vital to slow the record rate of foreclosures.

But lenders fiercely oppose the provision, saying that if judges were to allow some people to escape the original terms of their home loans, they would drive up borrowing costs for everyone by at least 1.5 percentage points.

Wade Henderson, president of the Leadership Conference on Civil Rights, issued a statement saying Congress must include the bankruptcy provision or "it's not a solution ... This bill amounts to dancing around a fire when Congress is supposed to be putting it out."

The housing crisis that traces its origins to the housing boom between 2002 and 2006. At that time, many borrowers with irregular incomes or spotty credit histories were steered into so-called subprime loans.

Such loans typically had low "teaser" interest rates that over time, rose rapidly. As the rates reset, more and more homeowners became unable to pay their mortgages. As many as two million subprime borrowers may now facing the possibility of foreclosure, and it's believed that about 600,000 of them could end up in bankruptcy court under Chapter 13.

Sen. Johnny Isakson, R-Ga., a former Realtor, was the chief proponent of the tax credit provision to motivate people to buy homes sitting on the market.

"It's an appropriate inducement" to spur home buying, he said in a phone interview. "It's the right way to go ... because it will stimulate the market."