House Ways and Means chairman Charles Rangel, D-N.Y. introduced a housing bill yesterday that would permit tax-exempt bonds to be guaranteed by Federal Home Loan Banks and permanently exempt mortgage revenue bonds from the alternative minimum tax.
The committee is expected to vote on the Housing Assistance Tax Act of 2008 today, as the Senate works to pass its own housing bill, which contains fewer bond provisions.
Housing advocates praised the Rangel bill, which is broader than the one pending in the Senate.
"We think it's an outstanding piece of legislation," said Barbara Thompson, executive director of the National Council of State Housing Agencies. "It contains nearly every NCSHA housing priority."
"It's a very important bill," said Anthony Freedman, a tax lawyer with Holland & Knight LLP here. "The combination of long-overdue reforms and short-term stimulus measures included in the bill should provide immediate help."
The bills pending in the House and Senate would both temporarily increase by $10 billion the amount of tax-exempt mortgage revenue bonds available to state and local housing finance agencies under the private-activity bond cap. The bonds could be used, not only to finance loans for first-time homeowners, but also to refinance subprime mortgages and to help finance rental housing developments.
Both bills also would exempt the mortgage revenue bonds from the alternative minimum tax to make them more attractive to investors, but the Senate measure would apply that exemption only to bonds issued under the cap increase.
John Murphy, executive director of the National Association of Local Housing Finance Agencies, said Rangel's proposed permanent exemption of mortgage revenue bonds from the AMT would be a "huge" help, as market conditions have made it difficult to convince investors to purchase housing bonds.
"I think in this climate, anything we can get will be a help. Rates are so low that my understanding is that there's next to nothing being done in the marketplace," he said. He added that the permanent AMT relief could make housing bonds "very attractive" once the market recovers.
From a state housing perspective, Thompson concurred, saying that AMT relief would go a long way towards attracting investors to mortgage revenue bonds.
"The investor pool for MRBs is limited, and the AMT is a severe discouragement to investors," she said. "It keeps them from investing, or they demand a higher yield, and that cost is passed on to the homebuyer or rental housing costs."
Only Rangel's bill would permit the Federal Home Loan Banks to guarantee tax-exempt bonds. Under current tax law, bonds with federal guarantees cannot be tax-exempt.
Rangel's bill also includes a provision that would simplify some specific rules relating to the amount of housing bonds a state may issue. Occasionally, states will issue several series of short-term bonds to more efficiently finance a project, and current law dictates that they must count each issuance against the total amount of bonds they are limited to issue each year even if the new bonds replace an earlier issue. Rangel's bill would modify the rules so that new bonds that replace old bonds would not count against the total.
Another key difference between the two bills is that Rangel's bill includes cost offsets, while the Senate's does not, which could prove troublesome to a Democratic Congress trying to adhere to pay-go rules.
Meanwhile, House Financial Services chairman Barney Frank, D-Mass., is crafting a housing bill to be called the FHA Housing Stabilization & Homeownership Retention Act. The committee is to hold hearings on the bill today and Thursday and to vote on it in the coming weeks.
Frank's bill would provide the Federal Housing Administration with up to $300 billion to help refinance mortgages held at-risk borrowers.
Frank's bill also would include $10 billion in community development block grant funds 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. The bill pending in the Senate includes only $4 billion for CDBG.
Housing sources expect the Rangel and Frank bills, once they are approved by the committees, to be combined and considered for a vote by the full House. If the House and Senate each pass housing bills, a conference committee would be named to consolidate them into a single bill that would be sent to President Bush for his signature.