2nd UPDATE:GOP Housing Plan Sees Fannie,Freddie Buying Cheap Loans
February 03 2009 - 2:49PM
Dow Jones News
Senate Democrats would consider a Republican proposal to create
a discounted mortgage rate subsidized by the federal government as
part of the debate over the economic stimulus package, Majority
Leader Harry Reid, D-Nev., said Tuesday.
He said that Democratic senators had discussed the proposal
during their policy luncheon, and that leadership would look at the
idea to determine its effectiveness in helping the ailing U.S.
housing market.
The proposal would direct Fannie Mae (FNM) and Freddie Mac (FRE)
to buy up new discounted loans offered by mortgage lenders in a bid
to stimulate demand to clear the backlog of properties and assist
owners struggling to keep up with payments.
The plan would create a temporary window during which a
federally subsidized rate of between 4% and 4.5% would be available
to all qualifying borrowers, and homeowners looking to
refinance.
Its cost would be capped at $300 billion, Republicans said. A
senior aide to Reid said that Democrats' main concern of the plan
was its possible cost.
Sen. John Ensign, R-Nev., said the plan could help up to 40
million Americans either buy a home or refinance their existing
mortgage.
Republicans said they will introduce the plan as an amendment to
the economic stimulus plan, which they say does little to tackle
the root cause of the troubled U.S. economy - the housing
market.
It would save the average prospective buyer and homeowner around
$400 a month, Republican aides said.
The discounted loan would be for a 30-year term and available
through 2010. It wouldn't be available on loans higher than
$625,500.
Any creditworthy homeowner, or prospective buyer, regardless of
how much they earn, could qualify for the lower loan rate.
The housing proposal will form one of the main thrusts of the
Republicans' attempts to modify the Democratic stimulus
legislation. They argue that the nearly $890 billion package is
bloated and doesn't do enough to immediately stimulate the
economy.
Sen. Johnny Isakson, R-Ga., will propose an extension of a
home-buyer credit to $15,000, or 10% of the purchase price,
whichever is less. The current legislation waives the need to pay
back a $7,500 credit on properties purchased by first time buyers
between Jan 1. and the end of August.
The GOP alternative would open the credit up to all individuals
buying a principal residence until the end of the year.
A Democratic amendment would retain the $7,500 cap, but also
extend the repayment freeze on the credit until the end of the
year.
Another Republican proposal would cut the two lowest federal
income tax bands to 5% from 10% and to 10% from 15%. An aide to
Minority Leader Mitch McConnell, R-Ky., said this credit would cost
around $130 billion.
Ensign said there would be a series of further proposed tax cuts
brought forward as amendments aimed primarily at helping small
business owners.
In order to pay for the proposed changes, Republicans plan to
attempt to strip out many of the spending elements in the stimulus
plan they argue will do little to stimulate the economy.
One of the measures in their sights is a tax credit aimed at
Hollywood movie studios, which would allow them to write down 50%
of their 2009 production equipment costs. Republicans say the
credit would cost $246 million.
GOP lawmakers intend to offer several amendments throughout the
week that will attempt to remove aspects of the bill they feel will
be difficult for Democratic lawmakers to defend.
Republicans aren't alone in thinking there is spending that
could be cut from the plan. Sen. Ben Nelson, D-Neb., said he was
working with a group of several Democratic lawmakers to identify
savings in the stimulus bill.
He said the group, which was cooperating with some Republicans
as well, would bring an amendment forward to strip out "tens of
billions" in spending and tax measures that wouldn't stimulate the
economy.
"We're working to take out as much that's borderline stimulative
as possible," Nelson said.
Reid said that Nelson could make details of his amendment public
as soon as Wednesday evening.
-By Corey Boles, Dow Jones Newswires; 202-862-6601;
corey.boles@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front
page of today's most important business and market news, analysis
and commentary. You can use this link on the day this article is
published and the following day.