Stimulus: Senate's Housing Hopes

NEW YORK (CNNMoney.com) -- As the economic stimulus package moves to the Senate, the drumbeat is growing louder for new provisions that directly address the housing crisis.

Key senators from both parties said they will push for measures intended to spur sales and help homeowners at risk of foreclosure.

"We need to go right at the housing problem. That's what started all of this," Senate minority leader Mitch McConnell, R-Ky., told CNN.

The Senate floor debate is set to begin on Monday. Here are three ideas likely to show up in amendments:

Create a 4% mortgage: Senate Republicans are likely to introduce a provision that would encourage lenders to offer a 30-year fixed rate mortgage at 4% for a limited period of time. The loans would only be available to credit-worthy home buyers and homeowners seeking to refinance.

The government would guarantee the loan for a number of years, an aide to McConnell told CNNMoney.com.

Senate Republican Conference Chairman Lamar Alexander, R-Tenn., said on the Senate floor Friday that the measure could involve not only a government guarantee but a subsidy as well.

"If today's prevailing rate were 5.2 or 5.3 percent ... the government would make up the difference."

The cost of such a provision hasn't been determined yet, but the aide said Senate Republicans would seek to structure the proposal in a fiscally responsible way, without specifying exactly what that meant.

Offering government-backed low-rate mortgages "could be very popular politically as it tries to fix the banks by fixing consumers," financial services analyst Jaret Seiberg of the Stanford Group wrote in a research note.

But using government funds to force rates lower "could be very expensive," Seiberg said.

And as mortgage rates rise, which they have in recent weeks, such a proposal could grow even more expensive.

Expand home buyer credit: Senate Budget Committee Chairman Kent Conrad, D-N.D., said last week he would propose an expansion of a temporary $7,500 first-time home buyer credit so that it applies to all purchases of primary residences.

Some Republican senators have called for an increase in the credit to $15,000.

On "Face the Nation," Sen. Charles Schumer, D-N.Y., said Sunday that lawmakers "can do more for housing." The proposal to increase the home buyer credit to $15,000 and make it available to all home buyers is "something that we look favorably upon," he said.

The Senate recovery package as it stands now removes the requirement under current law that the credit be repaid by buyers over time, assuming they don't sell their home for three years after claiming the credit.

The credit phases out for individuals making more than $75,000 ($150,000 for joint filers).

Hold off on foreclosures: Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters last week that he would like a provision in the stimulus package that would impose a 90-day moratorium on foreclosures. Dodd may consider other housing measures as well.

Postponing a foreclosure for three months might allow some troubled borrowers to keep their homes by buying them time to work out a new loan agreement with their mortgage servicer.

Obama housing proposals on deck

Advocacy in the Senate for more housing measures in the stimulus bill comes while President Obama is expected to release a comprehensive plan to fix the financial system within the next two weeks.

Obama has been promising for the past month that he would soon propose a foreclosure prevention program, and many believe that could be part of a plan he announces in the coming week. Indeed, he said Saturday that his plan will include a proposal to lower mortgage costs.

Last month, Obama's economic team promised lawmakers they would use $50 billion to $100 billion of the remaining money from the Troubled Asset Relief Program to prevent foreclosures.

Whether the housing measures proposed by Republicans on the Senate floor are intended to be in addition to Obama's proposals or as replacements isn't clear yet.

One of the ideas likely to influence Obama's plan is a loan modification program put forth by FDIC Chairman Sheila Bair that has garnered support from lawmakers. That plan would require that lenders reduce housing payments for delinquent borrowers to 31% of gross monthly income.

Lenders could achieve that by lowering mortgage rates to as low as 3% for five years, before increasing at an annual rate of 1 percentage point until they hit the prevailing market rate. Loan terms could be extended as long as 40 years.

In exchange, Bair proposed the government would share up to 50% of the losses if a borrower who gets a modified loan ends up defaulting anyway. And it would help foot some of the servicers' loan modification costs.

Stimulus 101: What's in the Bill

NEW YORK (CNNMoney.com) -- You've probably noticed: The Obama administration and Congress are talking about spending an unprecedented sum of money to try to revive the economy.

President Obama and House Democrats laid down the marker with an $825 billion package of spending and tax cuts. The Senate version will be taken up by two committees on Tuesday.

Dozens of proposals. Hundreds of pages of legislation. Billions of dollars.

What are some of the headline proposals, and what is the debate all about? The legislation is a work in progress, but here is an overview.

Infrastructure

The case for it: By investing in renewable energy, health care, education and modern construction projects, the Obama administration expects to create between 3 million and 4 million jobs and address key sustainability issues.

The case against it: Opponents argue the spending will lead to a rapidly increasing and unsustainable deficit. They also say that a majority of infrastructure projects will take too long to implement.

Construction projects: $90 billion. Fund the rebuilding of crumbling roads and bridges, build clean water and flood-control mechanisms and provide funding for mass-transit systems.

Education: $142 billion. Rebuild thousands of schools by modernizing classrooms, labs and libraries.

Renewable energy: $54 billion. Double production of alternative energy in the next three years. Weatherize low-income homes, modernize 75% of federal buildings and update the nation's electrical grid with a new, cost-efficient "smart" grid.

Health-care records: $20 billion. Modernize the health care system by computerizing all of the nations' medical records in the next five years.

Science, research and technology: $16 billion. Invest in science facilities, research and instrumentation to create new industries, new jobs and medical breakthroughs. Expand broadband Internet access in rural and underserved areas.

State relief

The case for it: As states face budget shortfalls, Obama's plan seeks to help states pay for Medicaid and unemployment benefits. State fiscal relief will be allocated to prevent increases in state and local taxes, or cuts in government services.

The case against it: Opponents say the bill should focus on job creation that will make an immediate impact the economy.

Medicaid: $87 billion. Increase Federal Medicaid Assistance Percentage so states do not have to cut eligibility for Medicaid due to budget shortfalls.

Law enforcement: $4 billion for states and municipalities for law enforcement.

Safety net

The case for it: Obama proposed temporary programs to protect those most vulnerable to the effects of the recession.

The case against it: As with state budget relief, opponents say the bill is too big and should simply aim to create new jobs. Some lawmakers have said some of the "safety net" spending provisions are wasteful, and many have called the bill unfocused.

Unemployment benefits: $43 billion. Extend through December 2009 emergency unemployment insurance assistance to states. Increase weekly unemployment benefits by $25, and provide incentives for states to expand unemployment coverage.

Cobra: $39 billion. Tax credit for recently laid-off employees to help pay for discounted health care. Obama estimates the plan will help 8.5 million people who recently lost their jobs.

Feeding the hungry: $20 billion. Increase food stamp benefits by 13%, and provide support for food banks, school lunch programs and WIC.

Tax cuts for individuals

The case for it: Throughout his campaign, the president pushed for tax cuts for low- and middle-income families. As a form of stimulus, it has the added advantage of being paid out faster than other provisions in the bill, and economists say those income groups are most likely to spend rather than save the money.

The case against it: Opponents say the size of tax cuts for both individuals and businesses do not go far enough and don't make up a big enough portion of the entire package. Furthermore, they oppose giving tax breaks to people who get back more money from the government than they pay in income and payroll taxes.

Middle-class tax cut: $145 billion. Tax cut amounting to $500 a year for individuals and $1,000 for couples. The full credit would be limited to those making $75,000 or less ($150,000 or less for workers filing joint returns).

Low-income tax cut: $5 billion. Expand the Earned Income Tax Credit, which is a refundable credit for low-income workers. Furthermore, the Make Work Pay Credit would be refundable, meaning that even tax filers without any tax liability - typically very low-income workers - would receive one.

Child tax credit: Up to $18 billion. Temporary increase in the amount of the child tax-credit that would be refundable.

Tax cuts for businesses

The case for it: Obama's plan seeks to help ease the tax burden for small businesses, as well as allow companies suffering losses because of the downturn to get some tax relief by applying losses to more years in which they booked a profit.

The case against it: Opponents say too small of a percentage of the total package - 2.7% - goes to small businesses, and to businesses in general.

Small business write-offs: Obama would increase the amount of expenses small businesses can write off to $250,000 in 2009 and 2010 from the current $125,000 level.

Tax cuts for companies suffering losses: Up to $17 billion over 10 years. Obama would temporarily broaden the "net-operating loss carryback" to five years, up from two years currently. The provision would let companies apply their 2008 and 2009 losses to past and future tax bills so they can get money back on taxes they've already paid or would otherwise have to pay.