Bill to ease housing crisis gains support
The Associated Press
WASHINGTON -- Momentum built on Wednesday for a bipartisan Senate bill designed to ease the slumping housing market and help millions of families threatened by foreclosure, though economists are skeptical that it will help much.
The scaled-back proposal released by Majority Leader Harry Reid, D-Nev., and GOP leader Mitch McConnell of Kentucky contains an amalgam of ideas aimed at boosting demand for housing and helping homeowners saddled with subprime mortgages avoid foreclosure.
The plan contains $4 billion in grants to local governments to buy and refurbish foreclosed homes, new authority for states to issue bonds to be used to refinance subprime mortgages and a $7,000 tax credit for people buying new homes or properties in foreclosure.
"It is a robust package," Reid said. "This is good news for the American people."
But economists across the political spectrum were skeptical that the measure would have much practical effect to ease the wrenching crisis in the housing market and the wave of foreclosures spreading across the country.
"They're good steps, but they're small steps and certainly not big enough steps to solve the problem," said Mark Zandi, chief economist for Moody's Economy.com.
While supporters said the measure would boost demand for housing, help people refinance adjustable-rate mortgages and help communities beset with abandoned homes, many economists cautioned that the measure's benefits would be modest -- and would help banks and homebuilders while doing hardly anything for people facing foreclosure.
The measure contains a provision dropped from February's stimulus measure that would permit homebuilders and other money-losing businesses to reclaim previously paid taxes, new disclosure requirements aimed at preventing unsophisticated borrowers from being duped by mortgage brokers, and additional money to provide counseling to people threatened with foreclosure and help them in negotiating with their lenders.
Republicans forced Democrats to drop efforts that economists said might have proven more effective in alleviating the crisis, including a plan opposed by banks and their GOP allies to change bankruptcy laws to help borrowers trapped in subprime mortgages keep their homes.
Republicans won a scaled-back version of a plan by Johnny Isakson, R-Ga., to provide a tax credit to people buying foreclosed or newly built homes. Isakson sought $15,000 in tax credits spread over three years -- aimed at boosting demand in the slumping housing market -- but GOP negotiators settled for a $7,000 credit awarded over two years.
Liberals and conservative economists alike questioned the merits of the idea, however, saying it would have relatively little effect on demand and that to the extent it would lift demand it would boost sales for banks who made bad loans and homebuilders who built homes despite signs that the market was slowing.
"Basically, you're giving money to builders that overbuilt and banks that issued bad loans," said Dean Baker, co-director of the Center for Economic and Policy Research. "It's giving money to the villains in this story."