Housing bill most likely to benefit builders, nonprofits

WASHINGTON – The Senate is poised to approve a massive housing bill today that may rescue some troubled homeowners in North Texas but is most likely to benefit homebuilders and nonprofit groups that may scoop up foreclosed homes.

The $25 billion bill is the product of months of intense lobbying and compromise and was driven by lawmakers and business interests hardest hit by foreclosures and bad loans.

Still, it's not expected to be a cure-all for the housing market, even for North Texas' big homebuilders, whose losses each quarter are now at or near $1 billion.

"It's helpful, but I don't think it's a silver bullet, either," said Timothy Eller, chief executive of Dallas-based Centex, the country's third-largest homebuilder. "There may be more that needs to be done or that Congress wants to do."

The housing plan gained urgency in recent weeks, as fears grew about the ability of mortgage giants Fannie Mae and Freddie Mac to survive a huge number of borrower defaults.

The bill allows the Treasury Department to offer an unlimited line of credit to the government-sponsored enterprises should they need big doses of new capital.

But the bill also is loaded with targeted measures.

Homebuilders such as Centex and D.R. Horton of Fort Worth would benefit from a $7,500 federal tax credit for first-time buyers, helping clear excess inventory.

In higher-cost markets outside Texas, the homebuilders should benefit from an increase in the size of loans that may be guaranteed by the Federal Housing Administration.

The FHA has already increased its loan volume as lenders stopped offering subprime loans and other exotic mortgages.

Its portfolio would swell even more under the new law, as the agency could insure up to $300 billion in refinanced loans, many originally made to subprime borrowers who are facing sharp interest-rate adjustments.

To offset the risk posed by so many new mortgages, Congress would eliminate a popular FHA program that flourished in Texas over the past six years. It allowed FHA borrowers to get a down payment donation from a nonprofit, which recouped its contribution from the home seller.

Such loans have much higher default rates than other FHA loans, according to the Department of Housing and Urban Development.

The program grew so popular that J.P. Morgan said in a research note that its elimination meant "the overall bill could result in more harm than good near term" for homebuilders.

Prohibition "is going to have a negative effect absolutely," said Scott Norman, interim executive director of the Texas Association of Builders.

Although Texas hasn't suffered as many foreclosures as coastal and Midwestern states, the bill would send almost $170 million to the state via grants that could be used to buy foreclosed properties.

Texas would channel the money into cities and urban counties that could award the grants to organizations that would buy foreclosed homes and rehabilitate them.

The plan is meant to minimize the impact of widespread foreclosures on local property values.

Under the Senate formula, the Dallas-Fort Worth area would get about $54.3 million, according to data prepared by the Center for American Progress, a liberal think tank. The money could buy and rehabilitate about 16,116 foreclosed properties, according to the center.

Most North Texas lawmakers have voted against the bill, saying it would bail out unscrupulous lenders and borrowers.

Republicans such as Rep. Pete Sessions of Dallas said they objected to a new affordable-housing trust fund that could dole out money to politically active charities.

Texas Sen. John Cornyn said Friday that he's likely to vote against the bill.

A spokesman for Sen. Kay Bailey Hutchison said she hasn't decided how to vote.

Mr. Cornyn and Ms. Hutchison voted for a previous version of the bill in April that contained a provision that would have allowed businesses to get tax refunds by applying current losses to previous, profitable years. Big homebuilders such as D.R. Horton and Centex lobbied for the provision.

The so-called loss-carryback measure was dropped from the bill after it was rejected by the House.

Mr. Cornyn said the bill has grown more expensive since April, when it was scored to cost about $10 billion.