WASHINGTON - Senate Democratic leaders yesterday unveiled legislation designed to aid homeowners at risk of foreclosure and stimulate the flagging economy, including a provision to increase the private-activity bond volume cap by $10 billion and allow housing finance agencies to issue tax-exempt bonds to refinance subprime mortgages.
"We believe when this legislation passes, it will prevent one million home foreclosures," Senate Majority Leader Harry Reid, D-Nev., said at a press conference. "We are convinced that this is the right way to stimulate the economy."
Reid said the Senate will take up the measure, known as the Foreclosure Prevention Act of 2008, the week of Feb. 25 when Congress comes back from its week-long Presidents Day recess.
By preventing housing foreclosures, families will be able to remain in their homes, which will help slow the decline in housing prices and its impact on consumers spending - the main driver of economic growth, Reid and other Senate Democrats argued.
Their comments come as housing prices have plummeted and the number of foreclosures has reached record levels due to defaults on mortgages issued to subprime borrowers. The subprime crisis also has triggered a credit crunch, which is likely to tamp down consumer spending and possibly spur an economic recession.
"This package is aimed at the bull's eye of our economic crisis - the housing market," said Sen. Charles E. Schumer, D-N.Y. "If we really want to tackle the economic problems the country is facing, we must address the housing crisis that got us here."
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 provide first-time loans to homebuyers. Currently the tax code only permits tax-exempt MRBs to be used to finance new loans to first-time buyers of single-family housing.
Another provision in the housing bill would also provide $4 billion for the Department of Housing and Urban Development's community development block 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 help fund economic development projects and can be used in projects financed by municipal bonds.
The housing proposal comes after the Senate failed to approve a broad economic stimulus package drafted by leaders of the Senate Finance Committee, which had included an identical MRB proposal. Instead, the Senate approved a more austere bill, which President Bush signed into law this week.
"The mortgage revenue bonds included in the [Democrats' housing] bill can boost home financing safely and effectively," said Senate Finance Committee chairman Sen. Max Baucus, D-Mont. "Congress needs to enact these and other smart provisions to shore up the housing sector now."
But the bill could face opposition from Republicans over a controversial provision that would allow bankruptcy courts to adjust the terms of mortgages for primary residences, something that can't be done under current law.
"Small changes to an outdated bankruptcy code could help over 600,000 at risk families keep their homes," said Senate Majority Whip Dick Durbin, D-Ill. "That should be our goal." q