Foreclosure crisis requires other measures

The Senate proclaimed a fierce bipartisan resolve two weeks ago to help American homeowners in danger of foreclosure by passing a bill called the Foreclosure Prevention Act which is composed largely of tax cuts. The New York Times reports that while a bill that senators approved last week would take modest steps toward that goal, it would also provide billions of dollars in tax breaks — for automakers, airlines, alternative energy producers and other struggling industries, as well as home builders.

Earlier this week, the House Ways and Means Committee passed its own version of the bill. Some of the provisions in the Ways and Means Committee housing tax package have merit, and the Ways and Means Committee tax package represents a significant improvement over the Senate’s version.

According to the Center on Budget and Policy Priorities addressing the foreclosure crisis will require other measures. In a report by Aviva Aron-Dine, Barbara Sard, and Will Fischer the Center on Budget and Policy Priorities found:

The Ways and Means Committee’s housing tax package improves on the Senate’s version in several important respects.

It omits the Senate’s net operating loss provision, an expensive business tax break that would neither help homeowners nor boost the economy.

It temporarily expands the Low-Income Housing Tax Credit and includes a package of other changes that would enhance the credit’s effectiveness.

It does not include a provision of the Senate bill that would effectively prevent local governments from increasing property tax rates, seriously aggravating their fiscal problems.

It complies with the Pay-As-You-Go (PAYGO) rule: the cost of the package is fully offset over 10 years.

However, the Ways and Means package does include two provisions — a credit for first-time homebuyers and a non-itemizer property tax deduction — that are not the best use of scarce resources.

While some provisions of the tax package have merit, the package would, by itself, not do very much to address the foreclosure crisis. That will require non-tax measures to help families keep their homes and assist communities especially hard-hit by foreclosures. The Financial Services Committee is developing such measures, which are expected to be joined with the Ways and Means tax package. A combined measure could represent a sound basis for final legislation.

Meanwhile according to The New York Times (John Leland 04/16/2008) Tired of waiting for the federal government to act, states are developing their own solutions to the foreclosure crisis, according to a survey released Tuesday by the Pew Charitable Trusts.

Twenty states have created intervention programs, 13 have set up counseling hot lines, 14 have assembled task forces and nine have established funds for emergency loans or refinance loans, totaling $450 million.

Colorado, Maine, Massachusetts, Minnesota, North Carolina, and Ohio have passed legislation requiring tighter underwriting standards for lenders.

Ohio has announced a nonbinding agreement with nine large loan servicers to modify troubled loans. It also recruited 1,000 lawyers to represent troubled borrowers free of charge.

Minnesota is working with loan servicers to arrange loan modifications and has set up a hot line to housing counselors who will help troubled homeowners negotiate with the servicers.

Colorado raised $750,000 in private donations to hire a non-profit agency to run a hot line that refers callers for counseling in person.