Senate agrees in principle on housing bill: Reid

WASHINGTON Wed Apr 2, 2008 2:57pm EDT

Senate Majority Leader Harry Reid (D-NV) speaks about the state of the union at the National Press Club in Washington, DC, January 25, 2008. REUTERS/Joshua Roberts

Senate Majority Leader Harry Reid (D-NV) speaks about the state of the union at the National Press Club in Washington, DC, January 25, 2008.

Credit: Reuters/Joshua Roberts

WASHINGTON (Reuters) - Senate Democrats and Republicans have agreed in principle on a bipartisan bill to help U.S. homeowners hit by the mortgage crisis, Senate Majority Leader Harry Reid said on Wednesday.

The expected legislation would provide a tax break to home builders, make billions of additional dollars available to help struggling homeowners refinance and fund more debt counseling, according to industry analysts and Senate aides.

But the conflict over a bankruptcy law provision in the Democrats' version of the bill remained unresolved, they said.

Banking committee leaders "are in the process of drafting the principles into legislative language ... It's a robust package addressing the issues," Reid said in remarks on the Senate floor.

A draft Senate bill may be unveiled by 5 p.m. EDT, the Nevada Democrat said, adding: "I think we're moving forward."

Congress is under pressure to help homeowners because the mortgage crisis and its fallout, including a wave of foreclosures and a global credit squeeze, appear to be dragging the U.S. economy into a recession.

Once a bill is unveiled, it is expected to go to the Senate floor for debate and amendments, with a possible final vote by the upper house at the end of the week. If adopted, the bill would then go to the House of Representatives.

In the end, the winners are likely to include home builders and other industries hit hard by the housing slump, said Jaret Seiberg, a policy analyst at Stanford Group Co, a financial advisory firm based in Washington.

Both Democrats and Republicans seem to favor extending a tax break that would allow companies to credit losses from the past two years against taxes paid over the prior five years.

Extending the "net operating loss carry back" provision "would benefit home builders, financial firms, and other companies which have suffered losses that exceed their prior two years of earnings," Seiberg said.

CORPORATE HANDOUT?

But the Laborers' International Union of North America criticized the measure, labeling it a $33 billion "handout for corporate home builders who helped cause the housing crash and the mortgage crisis."

Aides and analysts said there is wide support for expanding by $10 billion the ability of states to issue tax-free bonds to help troubled borrowers refinance their mortgages.

Other measures with bipartisan backing include putting more federal money into counseling for troubled borrowers, requiring clearer language in home loan paperwork, and funding purchase and repair of distressed properties by local governments.

A compromise bill might also include a Republican proposal to offer a $15,000 tax credit spread over three years for the purchase of a home in or near foreclosure, lobbyists said.

Republicans generally oppose a provision offered by Sen. Richard Durbin, an Illinois Democrat, that in limited cases would allow judges to revise the terms of a mortgage on a primary residence for a homeowner in Chapter 11 bankruptcy.

This is now prohibited, although a bankruptcy court judge may now revise the terms of a loan for a vacation home, a farm, a ranch, a boat or other debts in Chapter 11 cases.

Durbin's provision would allow mortgage changes only for a primary residence and only for borrowers who pass a means test showing they cannot afford their current mortgage.

It would also be limited to mortgages already in place at the time the bill becomes law. Judges would be restricted on how much they could reduce the interest rate and how long they could extend the life of the loan, Durbin said.

Under the provision, if a family sells the home within five years of any court-supervised mortgage revision, any gains in market value, up to the original mortgage amount, would be returned to the lender.

The banking industry is lobbying to block the Durbin provision, arguing that it intrudes on contract law and that it would drive up mortgage interest rates.

On the Senate floor, Durbin said, "What a real test of the United States Senate this will be. If we end up letting the mortgage bankers ... dictate to the Senate about changing the bankruptcy code, shame on us."

Stanford Group's Seiberg said the bankruptcy provision would probably be left out of the compromise bill and offered on the floor in the amending process, possibly in two different forms. One would be similar to the Durbin proposal, while another could call for more limited mortgage revisions in bankruptcy court, he said.

(Additional reporting by Patrick Rucker; Editing by Jonathan Oatis, Gary Crosse)