As Senate Majority Leader Harry Reid pushes for a vote as early as today on a bill that includes two bond-related provisions to help homeowners facing foreclosures, it likely will face major opposition over a proposal that would change the bankruptcy code to allow judges to modify mortgage loans.
One of the bond-related provisions in the bill, which Reid introduced Feb. 14, would temporarily increase by $10 billion the private-activity bond volume cap and allow the excess capacity to be used to refinance "qualified subprime loans," as well to finance loans to first-time homebuyers. The other provision would provide $4 billion of community development block grant program funds that could be used by localities with the highest foreclosure rates to purchase and refurbish foreclosed homes.
These provisions have relatively broad support, but the bankruptcy provision appears to be the one major deterrent against the bill's passage, housing advocates said.
Barbara J. Thompson, executive director of the National Council of State Housing Agencies, said that aside from the contentious bankruptcy provision she doesn't see any other obstacles.
"What we care most deeply about ... the bond volume-cap increase, it has very, very broad bipartisan support," Thompson said. "I think Democrats and Republicans would like to see some housing stimulus bill. I think there is concern on both sides that we need to do something for the ailing housing market."
Advocates of the bill claim it would help more than 600,000 financially troubled families could keep their homes by allowing modifications to their mortgages in bankruptcy proceedings. Current law says judges cannot change the terms of primary-residence mortgages as part of bankruptcy court proceedings.
"It's our understanding that [the bankruptcy provision] is the only controversial item," Thompson said.
The bill, S. 2636, includes the same mortgage revenue bond provision that Senate Finance Committee leaders drafted weeks ago in the initial version of the first stimulus package. The Senate approved that package after stripping it of the MRB and other proposals.
The bill, introduced by Reid, a Democrat from Nevada, would temporarily ease current law, under which state and local housing finance agencies can only issue tax-exempt mortgage revenue bonds to finance loans for first-time homebuyers. Under the mortgage revenue bond provision, the private-activity volume cap would be increased by $10 billion over three years, with the full amount available in the first year. The extra capacity could be used either to refinance subprime loans or to provide first-time loans to homebuyers.
John C. Murphy, executive director of the National Association of Local Housing Finance Agencies, said the group is "very supportive" of the package, but that "it's really a question of whether Sen. Reid can get the votes to even bring it to the floor.It really depends on the Republicans."
A spokeswoman from Senate Minority Leader Mitch McConnell's office said Republicans have not yet decided whether to oppose a cloture vote, under which 60 votes would be needed to limit debate on the bill before it is taken up for a vote by the full Senate.
The CDBG provision would provide $4 billion for the Department of Housing and Urban Development's grant program that could be used by localities with the highest foreclosure rates to purchase and refurbish foreclosed homes. CDBG provides grants to state and local governments to fund economic development projects and can be used in projects financed by municipal bonds.
Murphy said the subprime problems are threatening to "bring down" many neighborhoods, and that the CDBG boost is a positive step to help the worst hit localities to rebound.
Meanwhile, at the National Governors Association meeting here on Sunday, New York Gov. Eliot Spitzer, joined by colleagues from numerous states, called for a federal effort to help ailing homeowners, after arguing the Bush administration has "failed to offer substantive relief."
"The administration should also take responsibility for the role of federal regulators and national banks in this crisis, and engage in greater collaboration with states in the development of a solution to this problem and a preventive strategy for the future," Spitzer said in a release.