Federal housing and mortgage legislation (U.S.)

This article covers housing and mortgage related legislation in the 110th Congress (2007-2008).

Current status
The main housing and mortgage bill in Congress is the Foreclosure Prevention Act of 2008 (H.R.3221). It was passed by Congress on July 26, 2008. President Bush has removed his veto threat.

Foreclosure Prevention Act of 2008 (H.R.3221)
This bill is the main housing and mortgage bill in Congress.

Bill summary
The latest version of the bill voted on in the Senate contained:


 * A "rescue refinancing" package:
 * Qualified homeowner/borrowers can refinance their mortgages into 30-year, fixed-rate loan, whose monthly payments would be lower. The amount of the loan would be reduced to about 85 percent of its current market value. They will also have to pay fees that go to paying the costs of the system.
 * To qualify, borrowers would have to continue to live in the home and prove that they can make the new, reduced payments.
 * Lenders would get a federal guarantee on the mortgage should the borrower default - the mortgage would be bought by the Federal Housing Administration.
 * The program is funded at $500 million in its first year, paid for out of an Affordable Housing Fund largely financed through fees from Fannie Mae and Freddie Mac. The fund would also be used to create affordable rental housing. The program could help as many as 400,000 borrowers keep their homes.


 * Tax credit for first time homebuyers: A new, refundable tax credit for first-time homebuyers worth up to $8,000 or 10% of the value of their home, if they purchase an unoccupied home.


 * Reforms for Fannie Mae and Freddie Mac: Fannie Mae and Freddie Mac would receive a regulatory overhaul and increase the limits on loans in expensive markets they can purchase from lenders from $417,000 to $625,000. This encourages lenders to give more loans in that range.


 * Loan counseling: $150 million to expand loan counseling for borrowers.


 * New regulation of lenders: Mortgage lenders would be required to disclose more information on loans, including the projected monthly payments for adjustable rate loans.


 * Funds for foreclosure buy-ups by local governments: $4 billion in assistance for communities with high rates of foreclosures to purchase, renovate and sell off foreclosed-on homes. The funding would be enough for an estimated 120,000 homes, according to the Center for American Progress.


 * State foreclosure buy-up bond authority: Granted authority to states to issue $11 billion in mortgage revenue bonds to be used in aiding the purchase of up to 87,000 housing units for low-income families.

Origin
H.R.3221 started out as a green jobs/energy bill, but became the vehicle for Congress' response to the housing crisis in February 2008. It became known as the "Foreclosure Prevention Act of 2008" when the bill was gutted and replaced with an amendment in the Senate.



Republicans block initial passage in Feb. 2008
The version passed by the House in February 2008 contained billions for municipal governments to purchase subprime mortgages as well as increased freedom for bankruptcy judges to decrease the interest rates paid by lower-income homeowners on mortgages, which are largely exempt from bankruptcy relief. The mortgage-renegotiation provision was strongly opposed by the mortgage industry.



Initial Senate compromise package
The bill was taken up again by Senate leaders after the 2008 Easter recess. On April 2, Senate Banking Committee Chairman Chris Dodd (D-Conn.) and Ranking Member Richard Shelby (R-Ala.), announced an initial bipartisan compromise package that the Senate voted 94-1 to consider.

The Dodd-Shelby package, projected to cost $15 million over 10 years, contained:


 * For state/local governments:
 * $4 billion in Community Development Block Grants for local governments to purchase foreclosed homes for resale to stabilize prices.


 * For homebuilders and buyers:
 * $7,000 tax credit for buyers of foreclosed homes.
 * $6 billion in tax rebates for homebuilders and related businesses. Corporations that show losses in 2008 and 2009 can write-off losses retroactively as far back as 2004 to receive the rebates.


 * For homeowners in trouble:
 * $100 million for foreclosure counseling services (enough for about 250,000 families).
 * $1.7 billion and increased authority for state governments to use bonds to refinance troubled mortgages (would fund about $10 billion in bonds).
 * Increase in the amount of time military veterans have before their lenders start foreclosure on their homes.


 * For future homeowners:
 * Strengthened truth-in-lending laws.
 * Increase in the Federal Housing Authority loan-limits for homebuyers in the most expensive housing markets to $550,000.


 * For all homeowners:
 * A new tax deduction for existing homeowners who don't itemize their tax return deductions, estimated to be worth up to $1,000 in savings.

The Dodd-Shelby package did not contain previous Democratic proposals to allow judges to lower the interest rates on the home mortgages of people in bankruptcy (originally included in the Democratic proposal), a plan to permit the Federal Housing Authority to underwrite $300 billion in low-interest mortgages for homeowners in trouble, and contained only half the $200 million Democrats wanted for loan counseling. Economic think tanks on both the liberal (Center for Economic and Policy Research) and conservative (Heritage Foundation) side said the initial package would have little effect on the crisis.

The Durbin amendment to empower bankruptcy judges
Sen. Dick Durbin (D-Ill.) initially proposed an amendment to empower bankruptcy judges alter the terms of the home mortgage loan of a person in bankruptcy. Under Durbin's proposal, judges would be able to reverse or delay the onset of interest rate increases (often due to adjustable rate mortgages) and reduce the loan principle (amount) if they were in excess of the current value of the home. (These "underwater loans" are often the result of decreases in a home's value after purchase, as was common in the housing crisis.)

Soon after Durbin offered his amendment on the Senate floor on April 3, he moved to table (set aside) his amendment, which was strongly opposed by many Senate Republicans, in order to let the bill move forward without getting bogged down in debate. Senate Majority Leader Harry Reid (D-Nev.) called this an "act of unselfishness."

However, Durbin's amendment was passed out of the Senate Judiciary Committee along party lines as its own bill later that day, allowing it to come to the floor for its own vote. A competing version by Sen. Arlen Specter (R-Pa.) was defeated along the same lines. Specter's version had the same interest rate provisions but would have allowed the loan principle mark-downs only if the lender agreed.



Senate passes new version in Apr. 2008
On April 10, the Senate passed H.R. 3221 with the support of nearly all Democrats and opposition by a dozen conservative Republicans. 


 * For state/local governments:
 * $4 billion in Community Development Block Grants for local governments to purchase foreclosed homes for resale to stabilize prices.


 * For homebuilders and buyers:
 * $7,000 tax credit for buyers of foreclosed homes.
 * $25 billion in tax rebates for homebuilders and related businesses. Corporations that show losses in 2008 and 2009 can write-off losses retroactively as far back as 2004 to receive the rebates.


 * For homeowners in trouble:
 * $150 million for community groups providing foreclosure counseling services.
 * $30 million for legal aid service lawyers.
 * $1.7 billion and increased authority for state governments to use bonds to refinance troubled mortgages (would fund about $10 billion in bonds).


 * For future homeowners:
 * Increase in the Federal Housing Authority loan-limits for homebuyers in the most expensive housing markets to $550,000. (The recently-passed Economic Stimulus Bill of 2008 had temporarily raised the loan limit for 2008 only from $362,790 to $729,750).


 * For all homeowners:
 * A temporary tax deduction of up to $1,000 for existing homeowners who don't itemize their tax return deductions.

The Bush administration announced that while it supported the increase in FHA loan limits, it opposed the tax break for buyers of foreclosed homes and the increase in bonds for local governments to purchase foreclosed homes because they would place non-foreclosed homeowners trying to sell their houses. President Bush stated that he supported measures to authorize state and local housing agencies to use tax-exempt bonds to refinance mortgages at risk of default, but that he opposed other measures supported by Democrats that cost additional money.

House passes new version in May 2008
In May 2008 the House passed H.R.3221 with several new provisions. At the time of the vote, sale prices of houses had decreased by over 10 percent, with resulting hits in state and local tax revenues. 1.2 million houses were in foreclosure, with 3 million more projected to join them.

In one 266-154 vote, the House approved a package that would allow allow the Federal Housing Authority to offer banks taxpayer-backed insurance on the mortgages of homeowners likely to default in exchange for making the terms significantly easier for the homeowners to make. While this would cost banks substantial amounts of money versus what they would receive if the mortgages were all paid off, it would also reduce the number of homeowners who default on their mortgages, keeping them in their homes and theoretically saving the banks money in the long run. Homeowners who are behind in their payments and whose home values have fallen below the amount of their mortgage (thus creating an incentive for them to walk away from the loan) would be eligible for the program. The FHA would offer to insure their mortgages if the bank lowered the amount of the loan to no more than 90 percent of the current market value of the home (thus giving the homeowner positive equity in the home) and reducing the monthly payments. If the value of the insured homes rise and the homeowners sell or refinance at a profit, a portion of that profit goes back to the FHA. The Congressional Budget Office estimated that up to 500,000 homeowners would qualify for the program. More than a third of the insured homeowners were estimated by the CBO to end up in default anyway, with the FHA buying the mortgages from banks and selling off the property, costing $1.7 billion in taxpayer money.



In another amendment, the House passed by a vote of 322-94 a housing tax package costing $11 billion that would include a $7,500 tax credit for first-time house buyers this year. Recipients would have to pay the credit back over 15 years.



The Bush administration had threatened a veto of the bill but indicated that it was open to negotiation. Its existing program to encourage banks to reduce mortgages had been extremely limited in effect. Federal Reserve Chairman Ben S. Bernanke had endorsed the broad outlines of the plan earlier in the week and Secretary of the Treasury Henry M. Paulson had also indicated support. A spokesman for the Mortgage Bankers Association also indicated that they could support something resembling the House bill. After the House votes, the bill headed back to the Senate, where it would fall under the jurisdiction of Senate Banking Committee Chair Chris Dodd (D-Conn.) and committee ranking member Richard Shelby (R-Ala.) for them to address the differences between their bill and the House's.

House and Senate versions reconciliation
After passing important procedural votes on June 24 and 25, the bill stalled in the Senate when Republican senators demanded more time to consider the bill and a vote on an amendment. Senate Majority Leader Harry Reid (D-Nev.), who was trying to block a vote on the amendment, postponed the bill until after the 4th of July recess. The amendment was by Sen. John Ensign (R-Nev.) and contained a renewable energy tax package.

The version voted on by the Senate would:


 * "Rescue refinancing" package:
 * Qualified homeowner/borrowers can refinance their mortgages into 30-year, fixed-rate loan, whose monthly payments would be lower. The amount of the loan would be reduced to about 85 percent of its current market value. They will also have to pay fees that go to paying the costs of the system.
 * To qualify, borrowers would have to continue to live in the home and prove that they can make the new, reduced payments.
 * Lenders would get a federal guarantee on the mortgage should the borrower default - the mortgage would be bought by the Federal Housing Administration.
 * The program is funded at $500 million in its first year, paid for out of an Affordable Housing Fund largely financed through fees from Fannie Mae and Freddie Mac. The fund would also be used to create affordable rental housing. The program could help as many as 400,000 borrowers keep their homes.


 * Tax credit for first time homebuyers: A new, refundable tax credit for first-time homebuyers worth up to $8,000 or 10% of the value of their home, if they purchase an unoccupied home.


 * Reforms for Fannie Mae and Freddie Mac: Fannie Mae and Freddie Mac would receive a regulatory overhaul and increase the limits on loans in expensive markets they can purchase from lenders from $417,000 to $625,000. This encourages lenders to give more loans in that range.


 * Loan counseling: $150 million to expand loan counseling for borrowers.


 * New regulation of lenders: Mortgage lenders would be required to disclose more information on loans, including the projected monthly payments for adjustable rate loans.


 * Funds for foreclosure buy-ups by local governments: $4 billion in assistance for communities with high rates of foreclosures to purchase, renovate and sell off foreclosed-on homes. The funding would be enough for an estimated 120,000 homes, according to the Center for American Progress.


 * State foreclosure buy-up bond authority: Granted authority to states to issue $11 billion in mortgage revenue bonds to be used in aiding the purchase of up to 87,000 housing units for low-income families.

FHA Housing Stabilization and Homeownership Retention Act of 2008 - H.R.5830


The FHA Housing Stabilization and Homeownership Retention Act of 2008 is a bill written and championed by Rep. Barney Frank (D-Mass.), the chair of the House Financial Services Committee. He has said that he wants to combine the bill with others passed by the House to form a wider housing legislation package that also contained provisions addressing President Bush's requests. (See below for contents.)

Sen. Chris Dodd (D-Conn.), chairman of the Senate Banking Committee, has also said that he hopes to introduce a new bill the week of May 5th that would incorporate the provisions of the FHA Housing Stabilization and Homeownership Retention Act and President Bush's requests. Sen. Mel Martinez (R-Fla.), a member of the Senate Banking Committee, said he supports Bush's plan as a stand-alone.

President Bush opposed the bill, saying that the goals were unrealistic and risked too much taxpayer money. The Bush administrations already-in-effect homeowner assistance program, F.H.A. Secure, has only helped about 2,000 homeowners facing foreclosure.

On May 1, the House Financial Services Committee passed the bill on a 46-21 vote, including 10 Republican "aye" votes.

Bill summary
As passed by the House Financial Services Committee on May 1, the bill:


 * Requires that lenders set new terms for the loans of homeowners facing foreclosure. They would have to reduce the loan amount (principal) to no more than 90 percent of the home's value, as determined by an updated appraisal (likely often lower than the price paid for the home). The interest rate, likely a high adjustable rate, would also be reset to a 30-year fixed rate. To be eligible for the renegotiation, homeowners would be required to show that they could repay the new loan and would forfeit the property in the event of a default on the loan. House Democrats estimated that the plan could be used by as many as 1.5 million homeowners.
 * Contained $300 billion to insure the renegotiated loans by the Federal Housing Administration.
 * Gives the federal government a share of any future sale of the home. The share would be the greater of 3 percent of the new loan amount or 50 percent of the sale profit.

Expanding American Homeownership Act - H.R.1852


On September 18, 2007, the House passed the Expanding American Homeownership Act in a vote of 348-72. If passed into law, the bill would reform the Federal Housing Administration and direct up to $300 million a year into an affordable housing fund. Rep. Barney Frank (D-Mass.) applauded the legislation saying, "We do not have a general program for helping build affordable family housing, and that's what this bill would do." Frank also offered an amendment to the bill raising the agency's loan limit from $417,000 to as much as $729,750. The bill would also eliminate the 3% down payment requirement on FHA loans.

The bill would allow the Federal Housing Administration to insure refinanced loans for tens of thousands of borrowers who were unable to meet their mortgage payments after their mortgages reset to much higher rates than their initial low levels. Housing and Urban Development Assistant Secretary, Brian Montgomery, who heads the FHA, said the legislation could provide federal backing for loans to more than 200,000 homeowners previously out of the FHA's scope.

Rep. Ed Royce (R-Calif.), one of many Republicans who opposed the bill, called it "an experiment in socialism."



Mortgage Reform and Anti-Predatory Lending Act of 2007 - H.R.3915


On October 22, 2007, Rep. Bradley Miller introduced legislation aimed at tightening controls over the home mortgage industry. The Mortgage Reform and Anti-Predatory Lending Act of 2007 would force brokers to ensure borrowers can repay loans, by performing credit checks and verifying income. It would also require mortgage brokers to provide a plain-English explanation of loan terms.

The bill would also prohibit brokers—those who connect lenders and borrowers—from "steering" applicants toward loans that aren't good for consumers. It would also include provisions stating all brokers be licensed and registered.

Some state attorneys general have argued that an amendment to the bill would trump state laws against predatory lending. Rep. Barney Frank, chairman of the House Financial Securities committee, confirmed state laws might be trumped by the act, but only under certain circumstances, only when "relating to or arising out of the specific ability to repay and net tangible benefit standards set forth in the bill."

On November 15, 2007, the House approved the bill by a 291-127 vote.



External resources

 * Fact sheet on Durbin bill to empower bankruptcy judges to reduce mortgage loans (from Durbin's office).