WASHINGTON -- Senate leaders unveiled yesterday bipartisan legislation that would provide funds for mortgage counseling, tax incentives for homebuyers willing to purchase foreclosed or newly built homes and aid to states struggling with rising foreclosure rates.
"We helped Wall Street, we're all glad Bear Stearns was taken care of, but now it's our turn to take care of people on Main Street," Senate Majority Leader Harry Reid of Nevada said yesterday evening on the Senate floor.
The Foreclosure Prevention Act is a follow-up to February's economic stimulus plan, which is intended to spark the sagging economy. The compromise bill targets the troubled housing sector, which is at the heart of the nation's economic problems. The compromise offers some important advances, but some economists argue that it falls far short of what is needed.
"Anything that helps on affordability is going to provide some assistance," said Brian Bethune, U.S. economist for Global Insight, a forecaster in Lexington, Mass. "The question is whether they are trying to dig out the ocean with a teaspoon."
The White House weighed in with serious doubts about the plan.
White House spokesman Tony Fratto said the administration likes some provisions, such as issuing mortgage bonds and modernizing the Federal Housing Administration to boost access to FHA-insured loans. But he added that the administration has "serious concerns" about other provisions such as the homebuyers' tax credit and aid to local governments to purchase foreclosed homes.
The compromise plan would provide almost $11 billion in tax breaks to homeowners, lenders and homebuilders. It was reached after the Senate majority and minority leaders and the top Democrat and Republican on the banking committee agreed on a core set of principles. When they could not agree, they set in place a procedure for voting on the more controversial proposals as amendments.
"Getting to this point has required compromise by all sides. This is a solid, bipartisan start to keeping families facing foreclosure in their homes, helping other families avoid foreclosures in the future and helping communities already harmed by foreclosure to recover," said Reid and Minority Leader Mitch McConnell of Kentucky in a joint statement.
Over the next several days, senators will debate the core plan and more controversial amendments, such as a Democratic plan to give judges the power to change the terms of a mortgage when a homeowner has filed for bankruptcy.
Current law prevents judges from reworking the terms of a home loan. Republican lawmakers and the president oppose this provision, arguing that it would prompt lenders to rein in lending to all but the safest borrowers, exacerbating the current near-freeze in mortgage lending.
The core of the Foreclosure Prevention Act would:
Increase the Federal Housing Administration's loan limit from 95 percent to 110 percent of an area's median home price. This would allow families in all areas of the country better access to FHA loans with down payments of 3.5 percent.
Provide $4 billion in federal aid to local governments in areas hit hardest by foreclosures and mortgage delinquencies.
Provide $100 billion in additional federal funding to groups that provide mortgage counseling.
Prevent lenders from foreclosing on a home owned by a soldier within nine months of his or her return from active duty.
Force lenders to give active-duty soldiers one year's relief from a mortgage rate that adjusts upward.
Raise the standard income tax deduction for property taxes by $500 for single filers and $1,000 for families.
Provide $10 billion for federal tax-exempt bonds whose proceeds can be used to refinance subprime loans or finance first-time home purchases.
Give a $7,000 tax credit to purchasers of newly built homes, properties in foreclosure or those whose owners have defaulted on their mortgages. This aims to reduce the supply of homes for sale.
Bethune, of Global Insight, said a proposal by Democrat Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, and House Banking Committee Chairman Barney Frank, a Massachusetts Democrat, would help housing more. They propose that the Federal Housing Administration provide up to $400 billion in guarantees for distressed mortgages that are reworked voluntarily by lenders.
The Associated Press contributed to this article.