In a bid to help fix the housing crisis, the House of Representatives is considering a bill that would ease rules governing the use of tax-exempt bonds.
Among its provisions, the bill would reform the “cap” that annually determines the amount of tax-exempt housing bonds that each state may issue for low income housing. It also provides for an additional $10 billion of tax-exempt housing bonds this year that each state may issue for first-time homebuyers and to finance construction of low-income rental housing.
The bill would also temporarily allow qualified mortgage revenue bonds to be used to refinance certain sub-prime mortgages, remove tax-exempt housing bonds from being subject to the Alternative Minimum Tax and permit municipal bonds guaranteed by Federal Home Loan Banks (FHLB) to be treated as tax-exempt bonds, regardless of the purpose of the bonds.
The cost of these proposals over 10 years is estimated at $4.063 billion, out of the bill’s total $11 billion cost. The House Ways and Means Committee overwhelmingly passed the bill earlier this month, and it is now on the House floor for consideration. A bill passed by the Senate is narrower in scope, since it does not include the provision allowing FHLB guarantees of a broad range of municipal bonds. This provision was added by Rep. Charles Rangel (D-NY), chairman of the Ways and Means Committee. It was intended to provide credit enhancement to municipal bonds to replace the need for bond insurance, since many bond insurers have lost their premier ratings.
The fate of the bill is uncertain. It may be combined with a companion bill being introduced by House Financial Services Committee Chairman Barney Frank (D-MA) that would increase the amount of Community Development Block Grants and allow them to be used to purchase and refurbish foreclosed homes.
Numerous groups have lined up in support of the bill, including the Mortgage Bankers Association, National League of Cities, American Hospital Association and the United States Conference of Mayors.
It is uncertain whether the Bush Administration will go along with the Ways and Means Committee bill, which would apply to bonds issued after enactment of the legislation.