By fits and starts, Congress is moving toward a legislative response to the housing sector crisis — the biggest sectoral crisis to afflict the U.S. economy since the technology stock bubble burst earlier this decade. In what might turn out to be a case of the tortoise and the hare, the Senate has jumped out front with a housing bill that enjoys little if any support in the House or the Bush administration, while the House has embarked on a schedule of hearings and mark-ups of a much-praised bill of a wholly different nature. There is a widely shared consensus that, with elections approaching, Congress must and will act to address the crisis, but thus far, the two houses are proceeding along on separate, if not perpendicular, tracks. On April 10, the Senate adopted a package of tax breaks and assistance by a vote of 84-12 that was aimed more at easing the housing credit crunch by restoring liquidity to the sector than at addressing foreclosures. The day before, the House Financial Services Committee opened hearings on the Housing Stabilization and Homeownership Retention Act, a plan by Committee Chair Barney Frank (D-MA) to provide $300 billion in federal loan guarantees in an effort to stem the growing national tide of foreclosures. The committee will formally consider the Frank plan April 23 and 24.

Despite being considered the same week, these two measures have almost no similarities. The Senate bill, the inaptly named Foreclosure Prevention Act, consists mostly of a set of tax cuts for corporations and potential homebuyers costing $16.9 billion over five years ($10.8 billion over ten) without any offsets. The House plan, on the other hand, has $11 billion in tax cuts, all targeted at the housing sector and fully offset.

The Senate had sprinted forward the prior week with a rapidly-forged compromise by Banking, Housing, and Urban Affairs Committee Chair Sen. Christopher Dodd (D-CT) and ranking member Sen. Richard Shelby (R-AL) on a bill that had originally included a $400 billion Federal Housing Administration (FHA) loan guarantee provision similar to the Frank plan. Within days, that bill was raced to the Senate floor, and the mostly unrelated tax cuts crafted by Finance Committee Chair and ranking member Sens. Max Baucus (D-MT) and Charles Grassley (R-IA), respectively, were quickly appended. Shortly before the final vote, Dodd withdrew his $400 billion loan guarantee provision.

The Senate tax provision drew criticism in progressive and fiscal watchdog circles for having precious little to do with the housing sector crisis, let alone with preventing foreclosures. Those foreclosures are expected to increase in the U.S. by over a million in the next 18 months. One particular criticism from the Center on Budget and Policy Priorities (CBPP) declared the "Senate Housing Legislation Highly Disappointing" in a paper released April 8.

Some aspects of the tax provisions are so disconnected from the housing sector, they could make an ultimate House-Senate conference protracted and contentious. In particular, the biggest piece, a $6.1 billion provision to extend the net operating loss (NOL) carry-back period, would benefit corporations without regard to sector. This would allow a company that paid taxes in past years to write off those profits with current year losses, thereby creating a potential for getting money back from the government for the tax payments made in past years. In fact, this provision could end up making the problems worse. For example, the NOL provision could promote fire sales within the housing sector as companies holding mortgages rush to take immediate tax write-offs.

Another provision, a tax credit worth up to $7,000 toward purchases of foreclosed homes, will only benefit those with sufficient equity and credit to purchase a new home. This might actually promote foreclosures by bankers and other lenders and is not likely to do much to help communities hard-hit by foreclosures. Additionally, the tax deduction for state and local property tax payments is not targeted to the most distressed homeowners, few of whom itemize deductions on their tax returns. As CBPP points out, of the Senate proposal's $10.8 billion in tax cuts, only $1.7 billion is devoted to alleviating the foreclosure crisis. None of these provisions is in the Ways & Means Housing Assistance Tax Act.

The rest of the Senate bill does offer some effective assistance to those who have suffered or are at risk of foreclosure, providing $150 million worth of credit counseling. Yet this sum of money means that only a small fraction of the afflicted will be reached. In addition, $4 billion in Community Development Block Grants is included for local governments to buy or redevelop homes that have already been foreclosed.

Perhaps the most contentious feature of the Senate package is that it provides no offsets at all, thus violating Congress' pay-as-you-go (PAYGO) rule. This is not the first time the House and Senate have disagreed about following the PAYGO rule. It was at the center of a months-long delay in 2007 over patching the Alternative Minimum Tax (AMT).

Meanwhile, there has been growing support over the last two months for the Frank plan from House leadership, the Bush administration, and a broad range of outside analysts and experts. Under the plan, participating borrowers and lenders would pay a premium to the government in return for loan guarantees. These payments would bring the aggregate cost of the program down to negligible amounts — $10 billion over five years in the worst case, a profit for the government in the best.

Because the premiums and penalties will come close to covering government costs, the plan is expected to be practically PAYGO compliant without need for more than minimal offset provisions. For this reason, but more so because government spending would be negligible, the plan has found initial favor with the administration.

In the Senate, Dodd is reportedly preparing to re-introduce his initial proposal that would provide closer to $400 billion in loan guarantees, but it is unclear if that proposal would receive consideration now as the full Senate has already passed its proposal. But with growing support for the House proposal both from inside the Bush administration and out, the final version of housing legislation might look significantly different from the Senate-passed version.