The Bush administration has threatened to veto the Foreclosure Prevention Act of 2008, a second stimulus package containing bond-related housing proposals that is pending in the Senate, calling it "unnecessary, costly, and counterproductive."
In a statement released Tuesday, the administration urged the Senate to vote against the bill, in part because it opposes a controversial bankruptcy provision. Republicans and mortgage lenders are also unhappy with the provision, which housing advocates have said is the bill's Achilles' heel.
But administration officials also disagreed with one of the bond-related provisions that would provide $4 billion of community development block grant funds to state and local governments for the redevelopment of abandoned and foreclosed homes through a new program in the Department of Housing and Urban Development.
"In addition to being extremely costly, this new program would constitute a bailout for lenders and speculators, while doing little to help struggling homeowners," the administration said.
The bill, introduced by Senate Majority Leader Harry Reid on Feb. 14, faces an uphill battle even as far as a vote by the full Senate. Senate action on the measure was held up yesterday after Republicans voted for cloture on the motion to proceed with the first of two Iraq War bills sponsored by Sen. Russell Feingold, D-Wis., allowing 30 hours of debate on the bill for 30 hours without a vote.
The Chamber of Commerce also spoke out against the stimulus bill in a letter to senators, saying it opposes the bill as introduced, "because it improperly expands the bankruptcy code, granting new powers to bankruptcy judges to modify the terms of existing, legitimate mortgage contracts."
"Title IV of S 2636 injects greater risk into the lending process; this increased risk will be evidenced in increased mortgage costs for primary residences in the form of higher interest rates, down payments, points, and fees," the chamber said.
Reid acknowledged the concerns in a prepared statement to introduce the bill to the Senate floor, and said the goal is not to drive struggling families into bankruptcy.
"The means test provided in the legislation should prevent that from happening," he said. "We are also mindful of concerns that this provision could make access to mortgages more difficult by increasing costs, and could inject more uncertainty into the markets. But most independent experts agree that any increase in costs would be minimal, if they occur at all."
The other bond provision in the bill, lauded by housing advocates, would increase the private-activity bond volume cap by $10 billion and allow the excess capacity to be used to issue bonds to refinance "qualified subprime loans," as well to finance loans to first-time homebuyers.
The provision is a variation of a proposal the administration made earlier this year to increase the PAB volume cap by $15 billion and allow tax-exempt mortgage revenue bonds to be issued to refinance certain subprime loans.