Washington Update - 02/29/2008 (Plain Text Version)

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Home Buyer Tax Credits Needed to Jump Start Housing

Testifying on Feb. 27 before the Senate Finance Committee, NAHB Chief Economist David Seiders called on Congress to move quickly to enact a second round of economic stimulus directed squarely at the housing sector. Specifically, NAHB believes the best policy is to create a tax credit for the purchase of a home. “The biggest bang for the buck most likely would be provided by a temporary home buyer tax credit,” said Seiders. “Tax credits for the purchase of a home are a means of eliminating excess inventory, relieving some of the pressure on falling housing prices and ending the waiting-on-the-sideline strategy some potential buyers have adopted in response to overly negative media stories concerning the future of the housing market.”

The recently enacted Economic Stimulus Act of 2008 could fall short of achieving its intended results because it does not address the problems posed by the housing contraction that are at the root of today’s economic and financial market problems, he said. “The U.S. housing market n ow is in the contraction phase of the most pronounced housing cycle since the Great Depression,” said Seiders. “Single-family housing starts are already down by 60 percent from their peak at the beginning of 2006 and the bottom is not yet in sight. Congress can, and should, do more.”

There are many models that Congress can look to when designing home buyer tax credits. The District of Columbia, for example, offers a $5,000 tax credit to first-time home buyers for the purchase of a new or existing home. A similar version of a home buyer tax credit was used successfully in the mid-1970s when Congress established a temporary tax credit for the purchase of a newly-constructed home to help clear off a then-record number of unsold homes on the market.

NAHB applauds the efforts of several senators who are seeking similar solutions. For example, Sen. Debbie Stabenow (D-Mich.) has introduced S. 1988, legislation that provides for a temporary, one-time refundable tax credit for first-time home buyers of 10 percent of the purchase price of a principal residence. Additionally, Sen. Johnny Isakson (R-Ga.) introduced S. 2566, a bill creating a one-time $15,000 tax credit for purchasers of a single-family principal residence that is a newly constructed home or a home in default or foreclosure purchased within a one-year time period.

Seiders also urged the Senate Finance Committee to consider the following changes to tax policy in order to get housing moving again: Expand the mortgage revenue bond program, allow businesses to carry back net operating losses for five years and allow buyers to use IRAs or 401(k) accounts to purchase a home without suffering tax penalties. For more information, see NAHB's press statement or contact Greg Brown at 800-368-5242, x8421.

NAHB Board Issues Policy to Move Housing Forward

At its annual meeting in Orlando earlier this month as part of the International Builders' Show, the NAHB Board of Directors adopted policy addressing the housing downturn and the mortgage credit crunch. The board said that “while interest rate cuts by the Federal Reserve Board, efforts by the Administration to limit foreclosures and the recently enacted economic stimulus package are steps in the right direction, more needs to be done to stabilize the housing market and keep the economy moving forward. The directors called on Congress and the Administration to:

Extend the increase in conforming loan limits for Fannie Mae and Freddie Mac to at least two years and link this effort to full reform legislation for the housing government-sponsored enterprises
Modernize the FHA to further assist first-time and moderate-income buyers
Create a menu of tax credits and other incentives to stimulate home sales and help reduce the inventory of unsold homes on the market
Allow businesses to carry back net operating losses for five years to save jobs and help businesses weather the economic storm
Expand and provide more flexibility for the mortgage revenue bond program
Expand the definition of a qualified investment for a tax-deferred retirement account — such as an IRA or a 401(k) — to allow investment in a first-time home by purchasers, their parents or grandparents.

The board also said that the Federal Reserve Board should monitor economic conditions closely and, as needed, reduce interest rates and take other steps to bolster confidence and inject liquidity into the banking and financial system. [return to top]

Lawmakers Float Several Housing Remedy Proposals

Capitol Hill lawmakers are working on several proposals to address the mortgage credit crunch. House Financial Services Committee Chairman Barney Frank (D-Mass.) is working on a plan that would provide $15 billion over the next five years to assist up to 1 million borrowers to refinance their homes and avoid foreclosure. A committee document says the proposal "will likely involve using FHA and may involve the federal government purchasing loans." The panel is also working on a plan to provide as much as $20 billion in the form of grants, loans, or a combination of the two, for the purchase of foreclosed or abandoned homes at or below market value in order to help stabilize home prices.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) is proposing to create a Homeownership Preservation Corporation, designed to help struggling subprime borrowers. The corporation would buy mortgage securities that are backed by risky subprime loans, and the loans would then be restructured to make them more affordable for home owners. It is estimated that the cost of setting up the corporation could run between $20 billion and $25 billion.

Also of note, CQ Today reports that House-Senate negotiators this week have made progress on finalizing an FHA modernization package by dropping efforts to create an affordable housing trust fund. Rep. Frank has championed the concept of the trust fund, but has agreed to drop the House-passed provision to move the legislation forward. While Frank has agreed to move FHA reform without the trust fund, he has indicated that he will look for other legislative vehicles to move the trust fund forward.

In another positive development, NAHB CEO Jerry Howard is scheduled to testify next week before the Senate Banking Committee on the need to pass full GSE reform.The forum will present NAHB an opportunity to express its views on this issue to lawmakers responsible for crafting a bill.

NAHB continues to monitor events closely, and will weigh in with lawmakers on all pertinent housing proposals as more details emerge. For more information, contact Scott Meyer at 800-368-5242, x8144. [return to top]

Builders Support New Employee Verification Plan

A bill introduced by Reps. Sam Johnson (R-Texas), Ron Lewis (R-Ky.), Kevin Brady (R-Texas) and Paul Ryan (R-Wis.) that would create a new, mandatory employer verification system for all future employees received the endorsement of NAHB ths week. H.R. 5515, the New Employee Verification Act (NEVA), would require all U.S. employers to verify the work authorization of their future employees through a system operated by the Social Security Administration (SSA) via either an online program or telephone access to the verification system.

Under the bill, employers could not be prosecuted without the federal government proving that they “knew” that an employee was illegal. Additionally, the legislation contains language long-supported by NAHB that clarifies the relationship between an employer and the employees of its subcontractors. An employer cannot be held accountable for the work status of a subcontractor’s employees unless the employer “knew” that the subcontractor was using illegal labor.

Of particular interest to NAHB members and many state and local home builders associations is significant pre-emption language that would reinforce the federal government’s authority over immigration-related laws by invalidating all state and local laws that attempt to regulate or penalize employers in relation to the work authorization status of their employees, as well as all state and local laws that attempt to require employers to use the Basic Pilot/E-Verify program operated out of the Department of Homeland Security (DHS). The legislation would repeal the current Basic Pilot program in its entirety, replacing it with the program managed by the Social Security Administration.

Under the SSA program, an employer inputs the required information on a new employee, and SSA databases then send the employer an approval code indicating that the employee is authorized to work. SSA would be the only entity reviewing work authorization information on all U.S. citizens, and in a matter of seconds it would be able to verify the information provided against DHS’s database of workers holding valid work visas and legal permanent residents.

Employees who receive a “tentative disapproval” notice indicating that there is a problem with their records would be given a full opportunity to contest the determination and fix any problems in their records. Under the system, an employer would be required to terminate any employee who, after a further review by the government, receives a “final disapproval” notice. Additionally, employers would have liability protection from lawsuits by employees who are denied a job based on incorrect information in the government database.

The NEVA legislation comes at an important time, with Congress — particularly, the House of Representatives — poised to attempt to take up several different employer verification plans that raise concerns with NAHB and other employer groups. Many of these plans provide little federal pre-emption of state and local laws, no liability protection and no safe harbor language for the relationship with subcontractor employees.

By contrast, H.R. 5515 provides a fair and workable verification standard that reinforces the employer’s role in ensuring that their workers are legally authorized to work in the United States, while severely penalizing those employers who knowingly flaunt the law. NAHB will continue to monitor the progress of the bill, which has not yet been scheduled for a hearing. To read the legislation, click here and enter H.R. 5515 in the box at the center of the page. For more information, contact Jenna Hamilton at NAHB, or call her at 800-368-5242 x8407. [return to top]

Stiffer Fines Proposed for Illegal Aliens

Employers who knowingly hire illegal aliens will receive stiffer fines under an inflation adjustment procedure recently announced by the Bush Administration. “Work site enforcement and interior enforcement are critical elements of a strategy to deal with this issue of illegal immigration,” said Homeland Security Secretary Michael Chertoff, who on Feb. 22 conducted a joint news conference in the nation’s capital with Attorney General Michael Mukasey to highlight the Administration’s immigration enforcement and border security efforts. Chertoff said that these actions are being taken “to continue to make it less appealing for people to break the law” and as a way to “keep that pressure up to make sure people are compliant with the law.”

The new rule increasing employer fines was published in the Federal Register during the week of Feb. 25, and is set to take effect on March 27. Chertoff said that his agency plans to issue additional immigration rules in the future. One rule would require federal contractors to participate in E-Verify, an internet based identity and work authorization verification system, which is currently a voluntary program.

The other proposed rule is a revision to the controversial no-match rule that would have forced employers to fire their workers for unresolved name and Social Security number mismatches. A coalition of civil rights, business and labor groups and the U.S. Chamber of Commerce had sued to halt that rule's implementation. The rule was then stayed by order of the U.S. District Court after a finding that Homeland Security had failed to assess the impact on small businesses, and that many legal workers, including U.S. citizens, faced termination because of inaccurate Social Security Administration records. Homeland Security subsequently agreed to withdraw the original rule in light of the Court's findings. The provisions of the proposed new rule are expected to be announced in March. For more information, e-mail David Crump , or call him at 800-368-5242 x8491. [return to top]

Bankruptcy Measure Sinks Housing Bill

Senate Republicans blocked a housing bill (S. 2636) introduced by Senate Majority Leader Harry Reid (D-Nev.) that contains a controversial bankruptcy provision that could actually prolong the mortgage crisis. With a 48-46 vote on whether to consider the bill, the measure fell 12 short of the 60 needed to halt a threatened filibuster and proceed to a debate on the legislation.

While the bill contains many positive elements supported by NAHB -- including provisions that would expand the mortgage revenue bond program and allow businesses to carry back net operating losses for five years -- the legislation would do more harm than good because of its contentious bankruptcy language. Specifically, this provision would allow bankruptcy judges to reduce the value of a home loan, extend the terms of the loan, lower the interest rate, delay the effective date of an adjustable rate increase and make other similar changes to a mortgage for home owners going through Chapter 13 bankruptcy proceedings.

NAHB believes this would add substantial new risks to investors in the secondary market. The likely effect would be to reduce liquidity, make it more difficult for borrowers to obtain a mortgage or refinance, and increase mortgage rates.

Senate Democrats have indicated that they will attempt to renew debate on the housing package in the near future. NAHB continues to urge senators to remove the bankruptcy provision from the bill before moving forward. For more information, contact. J.P. Delmore at 800-368-5242, x8412. [return to top]

OFHEO Lifts Fannie-Freddie Caps, Holds Line on Capital

The Office of Federal Housing Enterprise Oversight (OFHEO) announced that effective March 1, 2008, it will lift restrictions on the amount of mortgages that Fannie Mae and Freddie Mac can hold on their books. NAHB issued a press statement in support of this measure, but said that OFHEO, the two housing government sponsored enterprises and Congress all need to take further action to help struggling borrowers. Specifically, NAHB said OFHEO needs to go a step further by removing the current capital surcharge on the GSEs, Fannie and Freddie need to rescind their recent fee hikes to lower borrowing costs and Congress needs to pass full GSE reform. For more informaton, contact Dave Ledford at 800-368-5242, x8265. [return to top]