UPDATE 1-Vote ahead on tax break-laden Senate housing bill

Fri Apr 4, 2008 2:01pm EDT

(Recasts with Dodd comments, background)

By Kevin Drawbaugh

WASHINGTON, April 4 (Reuters) - The U.S. Senate was expected to approve legislation next week that would only modestly address the U.S. mortgage market crisis while delivering some major tax breaks to corporations.

Senate Banking Committee Chairman Christopher Dodd said on Friday he was disappointed that the bipartisan bill did not go further to help struggling homeowners facing foreclosure.

"It does not really include fundamental relief," said the Connecticut Democrat on the Senate floor as lawmakers adjourned for the weekend. "You may be disappointed, as I am."

Dodd called the bill a step in the right direction, adding, "Anyone who thinks this bill is the end is making a mistake."

Dodd said he plans to have committee hearings next week on a more ambitious proposal, similar to a House plan offered by Rep. Barney Frank that would greatly expand the Federal Housing Administration's (FHA) role in tackling mortgage problems.

Frank, a Massachusetts Democrat, also plans to have hearings next week on his proposal to let the FHA offer hundreds of billions of dollars in new guarantees to help refinance distressed mortgages written down by banks and loan holders.

A comparatively moderate FHA reform was included in the Senate bill debated this week and headed for likely passage on Tuesday or Wednesday, along with a grab-bag of tax measures.

The Senate voted 76-2 on Friday to amend the bill to let money-losing corporations accelerate their use of certain accumulated tax credits to make new business investments.

Sen. George Voinovich, a sponsor of the amendment, said it would help companies that are in the red and cannot take advantage of another business tax break approved by Congress earlier this year involving accelerated bonus depreciation.

The Senate's bill is estimated to cost as much as $20 billion, with much of it accounted for by business tax breaks.

If it is adopted next week, it will go next to the House of Representatives, where lawmakers are already asking questions about how to pay for the tax measures favored by senators.

Other amendments to the Senate bill were expected to come up next week, possibly including one dealing with extending renewable energy production tax credits.

Dodd expressed some impatience on the Senate floor with multiple amendments only faintly related to housing.

"This isn't a Christmas tree," he said. "Why are we taking on matters here that run the risk of tying up this process for weeks on end ... It's a housing bill."

With the economy near recession, lawmakers are under growing pressure to address rising foreclosures, falling home prices and stubborn paralysis in parts of the credit market.

Demands for action on behalf of homeowners intensified last month after the Federal Reserve engineered a massive bailout of Wall Street investment bank Bear Stearns BSC.N.

Besides the Voinovich measure, the bill includes a $6-billion tax break for home builders and other businesses. The measure would extend a rule letting companies count net operating losses against tax returns from prior profitable years. In place for 2008 and 2009 only, the rule would allow carry-backs for four years instead of the current two years.

The Senate bill would expand the FHA's role in the mortgage market by raising the limit on the size of loans the FHA may insure to $550,000. The bill also calls for a $7,000 tax credit, spread over two years, for buyers of homes in or near foreclosure, and for issuance of $10 billion more in tax-free revenue bonds to help borrowers refinance their mortgages.

In addition, all home owners who pay property taxes would get a standard deduction of $500 for single filers and $1,000 for joint filers under the bill. At present, only taxpayers who itemize may deduct state and local property taxes.

Finally, the bill would direct $4 billion in federal grant money to communities to buy and fix up foreclosed homes, while devoting $100 million in federal money to debt counseling. (Reporting by Kevin Drawbaugh; Editing by Tom Hals)

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