WASHINGTON -- U.S. lawmakers moved closer to extending emergency supports for the battered U.S. housing sector on Thursday, as the Obama administration threw its weight behind the efforts.
The House of Representatives approved a measure that would keep the loan limit for U.S.-backed mortgages at $729,750 until 2011, effectively holding interest rates down for a large swath of U.S. homebuyers. The limit was scheduled to shrink to $625,000 at the beginning of 2010.
The measure, put in place to try to keep mortgage credit flowing earlier this year, was attached to a must-pass spending bill that was expected to be approved quickly by the Senate.
The Obama administration made clear it supported the move and also voiced support for a limited extension of a popular tax credit for first-time homebuyers set to expire at the end of November.
"This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide," Treasury Secretary Timothy Geithner and Housing and Urban Development Secretary Shaun Donovan said in a joint statement.
However, conspicuously absent from the statement was any mention of a possible expansion of the credit to repeat buyers of primary residences, as lawmakers in the Senate have proposed.
The administration, and some House Democrats, have expressed concern over the cost of expanding the credit when the budget is already under severe pressure. White House economic adviser Lawrence Summers told Reuters last week the administration would prefer to keep the focus on first-time buyers.
DODD PREDICTS OBAMA'S SUPPORT
Senate Banking Committee Chairman Christopher Dodd expressed confidence Obama would sign the expansion, despite any lingering misgivings over its cost.
"We are going to do this and my guess is the president will sign it," the Connecticut Democrat told reporters, adding that he was convinced House Democrats "see the value of this."
Dodd and other senators agreed this week to extend the $8,000 first-time homebuyer tax credit to any first-time buyer who has a purchase contract in hand by the end of April. Buyers would then have through June to close on the house.
They also agreed to expand the credit to allow for those who have been in their home for at least five years to receive a $6,500 tax credit if they purchase a new primary residence.
The proposal would also increase the income limits of those eligible for the program to $125,000 per year for individuals and $225,000 for couples.
Senator Johnny Isakson, a Georgia Republican, said the proposal would cost about $10.2 billion over 10 years and would be paid for with offsetting cuts elsewhere in the budget. Simply extending the current tax credit is estimated to cost $1 billion a month.
The Senate is expected to take up the tax credit measure next week as part of separate legislation to extend insurance benefits for unemployed workers. The House, which would also need to approve it, is expected to wait for the Senate to act.
LIFTING THE MARKET
Analysts say both the tax credit and the higher limit on the amount of mortgages government-controlled finance companies Fannie Mae and Freddie Mac can buy have helped the housing market, although critics of the tax credit question whether the value is worth the cost.
Without an extension of the higher loan limits, lenders could start pulling in the reins on larger mortgages at current low interest rates, dealing a new blow to housing and the broader economy. Fannie Mae and Freddie Mac help ensure mortgage credit is flowing by buying mortgages, which they either hold or repackage as securities for investors.
In a letter to congressional leaders on Monday, the Mortgage Bankers Association asked that the higher loan limits be extended before more lenders stop underwriting loans.
Some lenders have stopped providing certain mortgages at current interest rates, uncertain of being able to sell them to Fannie or Freddie and unwilling to keep them on their own books, the industry group said.
"Barring a continuing of both the first-time home buyer credit and the conforming limits, you're likely to see the mortgage market stall again," warned Daniel Penrod, senior industry analyst at California Credit Union League in Ontario, California.
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