HELPING HOMEOWNERS

The good news in the current Washington debate over the housing crisis is that the White House has concluded that a package aimed at helping homeowners should include at least as much help for homeowners as it does for corporate interests. Unfortunately, this logic hasn’t reached the Senate, which passed its housing stimulus bill Thursday. This can be rectified when competing legislation in the House and Senate is reconciled.

The Bush administration this week announced its own plans to expand a federal home loan insurance program to help up to an additional 100,000 homeowners this year. The Federal Housing Administration would ease criteria to allow more homeowners to refinance mortgages that, because of falling home values and the upward adjustment of mortgage rates, they can no longer afford.

A plan in the House, backed by Democrats, would further expand the FHA Secure program to cover as many as 1.5 million borrowers. This may be more in line with the scale of the problems that began in the subprime mortgage market and have spread to other credit markets, causing the collapse of mortgage and investment companies, with ripple effects felt throughout the economy.

The Senate has its own package, which is heavy on tax breaks for businesses. According to an analysis by the Congressional Budget Office, the Senate legislation would cost nearly $15 billion over 10 years, with more than $6 billion going to businesses. The bill would allow companies to count losses in 2008 and 2009 against income in the prior four years to obtain tax refunds. Current law allows a carryback for only two years. The measure is meant to help homebuilders, but is not limited to them, and demand for new homes, which is at a record low, drives their decisions on investment and hiring much more than tax breaks.

Another controversial aspect of the Senate bill is a $7,000 tax credit for those who buy foreclosed homes. The Bush administration warned that this could encourage banks to more quickly foreclose on properties. Banks typically consider foreclosure a last option because they would rather work out an arrangement to be paid than own a home that may be difficult to sell. By encouraging more buyers, this natural brake on foreclosures could be removed.

Rather than these negative consequences and expensive and non-targeted tax breaks, lawmakers would do better to ensure that homeowners be given ample opportunities to work out arrangements to pay off their mortgages and keep their homes.