Washington Update - 11/12/2007 (Plain Text Version)

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Carried Interest Provision in AMT Bill Would Harm Housing

While legislation approved by the House on Nov. 9 would provide temporary relief from the Alternative Minimum Tax, contains mortgage debt forgiveness provisions and extends dozens of expiring tax provisions, NAHB opposes the measure because a plan to tax "carried interest" to pay for the bill would impose a multi-billion dollar tax increase on real estate at a time when the industry is already experiencing a downswing. NAHB shares the goals embodied in H.R. 3996, the Temporary Tax Relief Act of 2007, to halt the reach of the AMT for another year and help struggling American families keep their homes. However, the carried interest proposal to offset the cost of this relief is the most significant and potentially most disruptive tax on real estate since the 1986 Tax Reform Act and would result in higher prices for multifamily housing, less job creation and lower community development, especially in underserved areas.

This is the message that NAHB sent to lawmakers in a letter before they voted on the bill. The potential impact of the carried interest provision on real estate develpment is of such concern to the home building industry that NAHB designated a "no" vote on passage of H.R. 3996 as a key vote. In addition, NAHB was a signatory to a letter signed by more than a dozen like-minded industry groups who voiced their strong opposition to the bill.

Under present law, capital gain income generated by carried interest in a partnership is subject to a tax rate of 15%. Under the House bill, which passed by a vote of 216-193, such carried interest would be characterized as ordinary income subject to tax rates up to 35%.

Though the bill was narrowly approved by the House, it is unlikely to be enacted into law as written. The carried interest provision faces long odds in the Senate, where Finance Committee Chairman Max Baucus (D-Mont.) and several other Democratic members of the committee have expressed discomfort with the carried interest proposal. Further, the White House has threatened to veto the proposed patch of the AMT, which would prevent an additional 20 million Americans from being captured under the tax, because it objects to the tax increases in the carried interest and other provisions to offset the cost of the bill. NAHB continues to urge Congress to enact swift passage of AMT relief and mortgage debt forgiveness legislation and to oppose the carried interest proposal because of its damaging impact on real estate develpment. To view the bill, click here and type H.R. 3996 in the box in the upper center screen. For more information, see NAHB's press statement or contact Greg Brown at 1-800-368-5242, x8421.

NAHB Co-Hosts 2007 Housing Affordability Symposium

On Nov. 5-6, NAHB co-hosted the 2007 Housing Affordability Symposium, along with the National Education Association and the NAACP. The two-day forum, which took place on the campus of the George Washington University in Washington, D.C., focused on innovative solutions to help more families find a home that meets their needs at a price they can afford. Key topics included helping subprime borrowers and preventing predatory lending, and these were among the issues discussed by guest speakers Sheila Bair, chairman of the Federal Deposit Insurance Corporation, and Randall Kroszner, a member of the Federal Reserve Board of Governors. For more information on the symposium, see the Nov. 12 issue of NBN Online or contact Blake Smith at 1-800-368-5242, x8583. [return to top]

Bernanke Offers Ideas to Resolve Subprime Mortgage Crisis

The spillover from housing to the economy still appears to be limited, Federal Reserve Chairman Ben Bernancke said on Nov. 8 in testimony before the congressional Joint Economic Committee. However, the Fed chairman said that “delinquencies will probably rise further for borrowers who have a subprime mortgage with an adjustable interest rate.” From now until the end of next year, he said that “nearly 450,000 subprime mortgages per quarter are scheduled to undergo their first interest rate reset.” To help resolve the subprime crisis, Bernanke called for enactment of FHA modernization pending in Congress and he also floated an idea that would allow Fannie Mae and Freddie Mac to purchase home loans above the current conforming loan limit of $417,000, suggesting that the federal government could guarantee the increased loan amount. He added that any such move should be temporary. [return to top]

House Approves Catastrophic Insurance Plan

Legislation supported by NAHB that would help reduce the high cost of home owners' insurance in states prone to natural disasters cleared the House on Nov. 8 by a vote of 258-155. H.R. 3355, the Homeowners' Defense Act of 2007, would provide a much-needed solution to ensure the long-term availability and affordability of comprehensive property and casualty insurance. Specifically, the bill would establish a National Catastrophe Risk Consortium that would allow the federal government to make loans to qualified state insurance funds if they run short of money or in the event of a major disaster such as hurricanes or the recent wildfires in California. The measure would authorize $120 million over the next six years to help coordinate the availability of reinsurance contracts between state reinsurance entities and the private market. The bill would also establish two new federal direct loan programs within the Department of Treasury for state reinsurance programs facing certain levels of insured losses following a natural disaster.

NAHB's Property Insurance Task Force developed policy supporting national solutions to provide comprehensive property and casualty insurance for home owners who are vulnerable to natural disasters, but had withheld support for such legislation in the past due to concerns over the federalization of building codes and land use decisions. Nevertheless, as the debate moved forward in the House, NAHB worked closely with the lead sponsors of the legislation, Reps. Ron Klein (D-Fla.) and Tim Mahoney (D-Fla.), along with House Financial Services Committee Chairman Barney Frank (D-Mass.), to insert new building code and land use language that addressed NAHB concerns. This revision was incorporated in an amendment offered by Rep. Chris Murphy (D-Conn.) that was subsequently approved by a voice vote. To view the bill, click here and type the bill number in the box in the upper center screen. For more information, contact Scott Meyer at 1-800-368-5242, x8144. [return to top]

Two Mortgage Overhaul Bills Passed by House Panel

The House Financial Services Committee on Nov. 6 approved H.R. 3915, legislation that is designed to curb abusive mortgage lending practices. Committee Chairman Barney Frank (D-Mass.) said the measure could get a House vote as early as Nov. 14. The bill would tighten lending regulations in response to the crisis in the subprime mortgage market, require lenders to make sure borrowers have a reasonable ability to pay back a loan and call on mortgage brokers to be licensed by states. It would also establish some legal liability standards for mortgage securitizers. On Nov. 7, the House panel approved H.R. 3837, legislation sponsored by Rep. Paul Kanjorski (D-Pa.), that would require certain borrowers to open escrow accounts along with their mortgages to protect against unexpected taxes and insurance premiums. The bill would also create federal appraisal standards. The legislation is expected to be added into H.R. 3915. To view the legislation, click here and enter the bill number in the box in the upper center screen. For more information, contact Scott Meyer at 1-800-368-5242, x8144. [return to top]

NAHB Helps Secure Changes to Timber Bill

The House Committee on Natural Resources last week passed H.R. 1497, the Legal Timber Protection Act of 2007. Introduced by Rep. Earl Blumenauer (D-Ohio), the bill would place all imported wood and imported wood products under the jurisdiction of the Lacey Act, which governs the parameters under which products may be excluded from importation into the U.S. as a result of their illegal origin. The bill seeks to dissuade illegal logging in foreign countries by blocking the ability of foreign governments to send illegally harvested wood products into the United States.

While fully supporting the intent of the bill, NAHB originally opposed the measure because it would have allowed the Department of Justice to pursue all entities in the chain of custody of a wood product for prosecution and forfeiture of the wood products in question, even though many in the chain of custody -- including home builders -- could have no possible way of knowing that the source of the wood product had once been illegally harvested timber. NAHB worked closely with committee Chairman Nick Rahall (D-W. Va.) to secure language that would limit the ability of the government to pursue consumers who have no knowledge of the wood product’s origin.

With this language accepted as part of last week’s committee consideration, NAHB can now support the bill, and has moved to encourage the Senate sponsor of companion legislation, Senator Ron Wyden (D-Ore.), to include the same language in his version of the legislation. Senator Wyden is working with Senate leaders to have his version of the illegal logging bill, S. 1930, added to the Farm Bill Reauthorization currently being considered on the Senate floor. NAHB believes that Senator Wyden is inclined to accept the language changes that would protect innocent owners from prosecution and forfeiture of their goods, and hopes that with this important change the legislation can move forward in the Senate as well. For more information, contact Jenna Hamilton at 1-800-368-5242, x8407. [return to top]