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"Mother of All Tax Bills" Targets Carried Interest
After more than six months of anticipation, House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) this week released what he calls the “mother of all tax bills” – H.R. 3970, the Tax Reduction and Reform Act of 2007. The legislation is wide-ranging and includes changes to both the individual and corporate tax systems. The primary focus of the bill is the permanent repeal of the Alternative Minimum Tax (AMT), which would be paid for by replacing the AMT with a 4% surtax on individuals with adjusted gross income of more than $150,000 and married couples earning more than $200,000. The surcharge would rise to 4.6% for individuals with more than $250,000 in income and married couples earning more than $500,000. The bill would also lower the overall corporate tax rate from 35% to 30.5% and extend the deduction for Private Mortgage Insurance and a number of expiring tax incentives of importance to real estate. NAHB staff is analyzing the proposal in detail to determine how it would impact housing and the home building industry. While there is little expectation that this bill will move this year, it serves as a good indicator of how Chairman Rangel would like to proceed with tax reform, and NAHB will be communicating our concerns accordingly to both Rangel and the full House of Representatives.
H.R. 3970 would also extend short-term AMT relief for another year, which would prevent an additional 20 million individuals from being captured under the tax. This piece is likely to be spun off from the larger bill along with the extension of a number of expiring tax provisions to be moved quickly through the Ways and Means Committee and, ultimately, the full House (a committee markup of the bill could take place during the week of Nov. 5). Of great concern to NAHB is that the cost of this smaller bill would be offset through a change in the taxation of carried interest. Essentially the provision mirrors legislation introduced by Rep. Sander Levin (D-Mich.) earlier this year (H.R. 2834) that taxes a carried interest at ordinary income tax rates (as high as 35%) instead of the current 15% capital gains rate. While this proposal has been promoted as a method for ensuring highly paid hedge fund and private equity fund managers pay their appropriate level of tax, it would disproportionately affect real estate, especially small developers.
Senate Finance Committee Chairman Max Baucus (D-Mont.) is also committed to passing short-term AMT relief before the end of the year, although he has expressed no interest in larger AMT repeal legislation at this time or passing stand-alone carried interest legislation along the lines of Rep. Levin’s bill. Further, there are questions as to whether the Senate will require any offset for an extension of short-term AMT relief and there have been some discussions of waving congressional pay-as-you-go requirements. The House leadership to date has not supported this approach and the situation is very fluid. NAHB is weighing in with our concerns and monitoring the activities around both tax bills very closely. For more information, contact Greg Brown at 1-800-368-5242, x8421.
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Frank Unveils Bill to Tighten Mortgage Regulations
House Financial Services Committee Chairman Barney Frank (D-Mass.), along with Reps. Brad Miller (D-N.C.) and Mel Watt (D-N.C.), on Oct. 22 introduced legislation to tighten mortgage regulations in the wake of the turmoil in the subprime mortgage market. Upon unveiling the measure, Frank said it would "diminish predatory lending while continuing to support a vigorous mortgage market."
H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, would:
- Require any mortgage lender to verify that the borrower has a "reasonable ability to repay" a loan
- Bar paying incentives to brokers who steer borrowers to more expensive mortgages
- Require mortgage originators to be licensed and registered under state or federal law
- Sharply restrict prepayment penalties
- Expand and enhance consumer protections for "high-cost loans" under the Home Ownership and Equity Protection Act
- Allow home owners to sue brokers if they were placed into mortgages that they could not afford
During a hearing before the House Financial Services Committee this week to examine the legislation, federal regulators called on Congress to take a balanced approach to ensure that it protects borrowers without reducing liquidity in the mortgage markets, which could wind up making it even more difficult for borrowers to obtain a mortgage or refinance an existing loan.
"Getting this balance right is particularly critical now, as many borrowers facing rate adjustments may need to refinance into more affordable loans," Federal Reserve Governor Randall Kroszner said in written testimony. He added that Congress should not approve any bill that would have a "detrimental impact on the ability of lenders to securitize loans."
Comptroller of the Currency John Dugan said that he "supports some of the broader standards" of the bill, but cautioned that "application of some of the new and extensive mortgage standards to banks that do not provide subprime mortgages raises significant issues of regulatory burden and fairness."
NAHB continues to monitor the situation and is evaluating individual provisions in the bill to determine their impact on the housing market. NAHB policy is to support and encourage continued mortgage market innovation to improve housing affordability and expand homeownership opportunities as long as these loans are prudently underwritten to ensure that the form of financing is appropriate for the borrower and market and that consumers are fully aware of the features and risks of the loan. For more information, contact Scott Meyer at 1-800-368-5242, x8144.
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Report Estimates 2 Million Homes Could Be Lost to Subprime Foreclosures
A new report issued this week by the Joint Economic Committee predicts that as many as 2 million subprime mortgage foreclosures could occur by 2009, resulting in approximately $71 billion in loss of housing wealth "because each foreclosure reduces the value of a home." The JEC report, entitled "The Subprime Lending Crisis: The Economic Impact on Wealth, Property Values and Tax Revenues, and How We Got There," also says that more than $32 billion in housing wealth will be indirectly destroyed "by the spillover effect of foreclosures, which reduce the value of neighboring properties." The study also says that states could lose more than $917 million in property tax revenue as a result of the subprime foreclosures.
To combat the subprime crisis and prevent the current scenario from ever repeating itself, the report offers a number of suggestions, including:
- Expanding foreclosure prevention counseling
- Temporarily increasing the portfolio caps for Fannie Mae and Freddie Mac
- Modernizing the Federal Housing Administration
- Amending the bankruptcy code to protect families from foreclosure
- Waiving tax liability on forgiven debt in restructured loans
- Encouraging more loan modifications and refinancings
- Reforming mortgage lending and banning predatory lending practices
For more information, view the complete report or contact Scott Meyer at 1-800-368-5242, x8144.
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NAHB Opposes OFHEO Proposal to Lower Conforming Loan Limits
An unwelcome proposal by the Office of Federal Housing Enterprise Oversight (OFHEO) is generating substantial opposition from NAHB and other industry groups.The regulator's recently published notice in the Federal Register would allow it to establish new guidelines that could result in future declines in the conforming loan limit. NAHB strongly opposed this guidance when OFHEO first issued it this summer, and at that time called on OFHEO to issue its proposed changes for comment in the Federal Register rather than just posting the announcement to its website. While OFHEO acceded to this request for broad public input and has recently announced it will not lower the current conforming loan limit of $417,000 in 2008, NAHB continues to oppose the proposed procedures because of their potential effect on future loan limits. OFHEO's proposed guidance is not only bad public policy in the midst of the ongoing housing correction, but it is also not authorized under current law, which provides that the limit may only be adjusted based on increases in the statutory house price index. Read more in the next NBN Online, or contact Chellie Hamecs at 1-800-368-5242, x8425.
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Code Provision Contested in Global Warming Bill
The Senate Environment and Public Works Committee convened a subcommittee hearing on Oct. 24 to discuss S. 2191, America’s Climate Security Act. The bipartisan legislation, introduced last week by Sens. Joe Lieberman (D-Conn.) and John Warner (R-Va.), would create an economy wide cap on carbon emissions and set up a carbon trading scheme. The bill also includes a number of efficiency measures that contain provisions to increase state building codes by 30% above the 2006 International Energy Conservation Code by 2010 and 50% above code by 2020, allowing the Department of Energy to draft modified codes for states that cannot achieve these targets. NAHB has been actively lobbying against the building code mandates since the spring and is working with committee staff to highlight our concerns with this provision. The legislation is scheduled for a subcommittee mark up on Nov. 1 and a full committee mark up shortly thereafter. For more information, contact Elizabeth Odina at 1-800-368-5242, x8570.
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Builders Oppose Attempts to Prohibit Arbitration in Home Contracts
The House Judiciary Committee's Subcommittee on Commercial and Administrative Law held a hearing on Oct. 25 on H.R. 3010, the Arbitration Fairness Act of 2007. The legislation is opposed by NAHB because it would prohibit the use of binding arbitration agreements in residential contracts. In a letter sent to Subcommittee Chair Linda Sanchez (D-Calif.), NAHB said that the use of alternative dispute resolution, including binding arbitration in consumer contracts, "is often the most rapid, fair and cost-effective means to resolving disputes -- for both the builder and the buyer -- arising out of the construction and/or sale of the home. In contrast, litigation is an inefficient means to resolve construction defect disputes; it is expensive, time-consuming and unlikely to produce the desired result, which is having a problem repaired. Consequently, NAHB will strongly oppose H.R. 3010 and any other attempt to prohibit the use of pre-dispute arbitration in home construction defects." To view the legislation, click here and type the bill number in the box in the upper center screen. For more information, contact J.P. Delmore at 1-800-368-5242, x8412.
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Senate Approves Labor-HHS-Education Spending Bill
The Senate approved its version of H.R. 3043, the fiscal 2008 Labor, Health and Human Services, and Education Appropriations bill this week, sending the bill into conference with the version passed by the House in July. The bill passed 75-19, sufficient to overcome a promised veto from the White House, and would provide $606 billion in total spending for fiscal 2008. The House passed its bill on July 19 by a vote of 276-140, which is not large enough to override a presidential veto. The Senate Labor-HHS-Education bill would provide about $9 billion more than the Administration requested while the House version contains about $11 billion more. The White House has threatened to veto any bill that exceeds its budget target.
Of interest to NAHB members are the following Senate Labor appropriations spending levels, which will have to be reconciled with the House:
Program Amount
Job Corps funding $1.65 billion
WIA funding (total) $3.58 billion
OSHA (total) $498 million
OSHA (enforcement) $188 million
OSHA (training grants) $10 million
Apprenticeship $21 million
Vocational Educ (Perkins) $1.294 billion
Responsible Reintegration of Youth offenders $55 million
Prisoner Reentry program $0
Reintegration of Ex Offender $13 million
Community Based Job Training $125 million
Youth Build $65 million
The Senate’s passage of the Labor-HHS-Education Appropriations bill marks the sixth spending bill handled by the chamber this year. It is unknown whether the Senate will move forward with consideration of any of its other bills, or whether it will simply move to roll all remaining bills into one omnibus package for the President. Senate leaders have indicated that it is possible that the Labor Appropriations bill will be combined with the Military Construction Appropriations bill and sent to the President simultaneously in the hopes that he will not veto it. The White House has indicated that even with the attachment of the Military Construction Appropriations bill, it is likely to veto the measure. For more information, contact Jenna Hamilton at 1-800-368-5242, x8407.
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