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U.S. House Passes Forclosure Rescue Bill

The U.S. House Financial Services Committee last week favorably reported out H.R. 5830 by a bipartisan vote of 46-21. The "FHA Housing and Homeowner Retention Act," sponsored by Rep. Frank (D-MA), would allow the Federal Housing Administration (FHA) to insure certain mortgages for homeowners in trouble. Under the proposal, mortgage servicers would substantially write down the principal of the mortgage to a level the homeowner could repay. In return, the FHA would insure the new mortgage. Homeowners would share any future appreciation with the government.

This bill is expected to be on the House Floor this week as part of a Housing Stimulus package that is expected to also include FHA reform, Government Sponsored Entities (GSE) reform, and a tax credit for homebuyers.

The tax package (H.R. 5720) passed the Ways and Means Committee on a vote of 35 - 5 in early April.

The House will vote on a proposal that creates a $7500 tax credit that would be taken in full on the tax return for the year of purchase. Any principal residence would be eligible for the tax credit, but only first-time homebuyers with incomes of $70,000 ($140,000 on a joint tax return) would be eligible for the credit. NAR data show that more than 95% of first-time homebuyers fall within that income level. The Ways and Means tax credit would be available between April 8, 2008 and April 1, 2009.

By contrast, the Senate-passed legislation (H.R. 3221) would create a temporary tax credit for individuals who purchased a principal residence between April 1, 2008 and April 1, 2009. The credit amount would be $7000, to be taken in two increments ($3500 each) over two years. The Senate version of the tax credit would be available to any buyer but would apply only to purchases of foreclosed properties that would be used as a principal residence. The Administration has criticized this approach as distorting markets and prices.