By Eugene T. Lowe and Edward Wu, UCLA Intern
April 21, 2008

Both the House and Senate considered legislation during the week of April 7 to address the deepening mortgage foreclosure crisis. The Senate, by a vote of 84-12, passed H.R. 3221, the “Foreclosure Prevention Act of 2008” on April 10. Three mayors testified before the House Financial Services Committee on the proposed FHA Housing Stabilization and Homeownership Act by Chairman Barney Frank (MA). Frank introduced the bill formally April 17 as H.R. 5830.

Also in the House, the Ways and Means Committee, chaired by Charles B. Rangel (NY), passed on April 9, H.R. 5720, the Housing Assistance Tax Act of 2008, by a vote of 35-5, which Rangel says, “will provide relief to the buyers and families themselves, not just the banks and builders.” The Administration also advanced its response to the crisis with an expansion of FHASecure that will help more homeowners who are at risk of foreclosing on their homes.

The Senate bill, H.R. 3221, which came out of a bipartisan agreement developed by Senate Banking Committee Chairman Christopher Dodd (CT) and Ranking Member Richard Shelby (AL), has several important provisions for local governments, including Community Development Block Grant (CDBG) funds (referred to as a neighborhood stabilization fund) that would make it possible for localities to buy foreclosed properties and then sell or rent them. The program, originally funded at $4 billion, would receive $3.92 billion following an amendment that reduced the funding by $80 million to be used for housing counseling. The counseling program would receive $180 million. There is also $10 billion for mortgage revenue bonds. After passage, the bill was sent to the House.

District of Columbia Mayor Adrian M. Fenty, Boston Mayor Thomas M. Menino, and Las Vegas Mayor Oscar B. Goodman testified on Frank’s bill April 10 that would allow the Federal Housing Administration (FHA) to insure refinanced mortgages of troubled homeowners that have been significantly written down by mortgage holders and lenders. FHA would be permitted up to $300 billion in new guarantees. The bill as originally drafted would also provide $10 billion in loans and grants for the purchase and rehabilitation of vacant, foreclosed homes with the goal of occupying them as soon as possible. Former Baltimore Mayor, now Governor of Maryland Martin O’Malley also testified. The mayors stressed that any financial relief to cities should be funded directly using the CDBG program that distributes 70 percent of the funds to localities and 30 percent to states. However, Frank’s bill called for 100 percent of the funds to be distributed directly to the states; but the mayors stood their ground, saying that it was critical to get the funds directly to cities. O’Malley did not explicitly agree or disagree to the mayoral position, but agreed that involving states in the funding process could delay the arrival of relief monies. When questioned why he was not adamantly pushing for more money specifically for states, he exclaimed, “Once a mayor, always a mayor.”

During the hearing, Representative Maxine Waters (CA), chair of the House Subcommittee on Housing and Community Opportunity who had also introduced mortgage foreclosure legislation, announced that she had reached an agreement with Frank to combine elements of both bills. Most importantly, the funds for neighborhood stabilization would be increased from $10 billion to $15 billion. Waters reintroduced her new bill April 17 as H.R. 5818.

Frank has tentatively scheduled markup of the bill on April 23. Financial Services Committee staff indicates that the bill will have the CDBG allocation distribution of 70/30.

The Senate passed H.R. 3221, which does not have the $300 billion increase in loan guarantees for FHA that Frank’s bill has. But Dodd is actively pursuing such a bill in the Senate that he calls the “Hope for Homeowners Act of 2008.” A hearing was held on the Senate bill on April 10.

Rangel’s bill, H.R. 5720, provides a counter to the Senate passed H.R. 3221. The Senate bill’s tax provisions have been criticized for a heavy emphasis on builders instead of families, but H.R. 5720 goes in a different direction. Each state’s per capita limit of low income housing tax credits would be increased by 20 cents (over the current limit of $2.00 per capita). Mortgage revenue bonds would be increased to $10 billion and used for loans to first-time home-buyers. A tax credit up to $7,500 would also be available for first time home-buyers for homes purchased before April 1, 2009.

At some point in the next few weeks, it is hoped that the Senate and House bills will be brought together into a final congressional package.

With the mortgage crisis becoming worse, the Administration, which in August 2007 had modified FHA’s refinancing program to help credit homeowners who had missed payments, announced on April 9 additional mortgage assistance for subprime borrowers. FHASecure will now expand its eligibility standards to include borrowers who had missed as many as two to three consecutive monthly mortgage payments or at two to three different times over the previous twelve months. The Administration says that this expansion would make it possible for FHASecure to help half a million homeowners stay in their homes by cutting mortgage payments.