Thank you, Mr. Chairman. I am glad that you have called this hearing today on encouraging homeownership. The topic is a priority of mine and one to which I believe that this Committee - and this Congress - should be dedicating a greater proportion of time.
Let me begin by welcoming our witnesses today, HUD Secretary Martinez and the representatives of our second panel. I thank you for being with us today and I look forward to hearing your comments today.
Mr. Chairman, there are a number of challenges in the housing sector today that require Federal attention. Both on the demand supply of housing and on the supply side.
On the demand side, there are still far too many barriers to homeownership. In particular, one of the biggest barriers to homeownership is the upfront costs for first time homebuyers trying to buy a home. According to the Mortgage Bankers Association, typical total costs for downpayment and closing can approach over $9,000. This is an impossible amount to save for those who are working hard to make ends meet.
That is why I recently teamed up with Senator Gordon Smith to introduce our First-Time Homebuyers' Tax Credit Act, S. 1175. Our bill authorizes a one-time tax credit of up to $3,000 for individuals and $6,000 for married couples. This credit is similar to the existing mortgage interest tax deduction in that it creates incentives for people to buy a home.
To be eligible for the credit, taxpayers must be first-time homebuyers who were within the 25% tax bracket or lower in the year before they purchase their home. ($68,800 for single filers, $98,250 for heads of household, $114,550 for joint returns.) There is a dollar-for-dollar phase-out beyond the cap.
Normally, tax credits like this are an after-the-fact benefit. They do little to get people actually into a home. What is particularly innovative and beneficial about the tax credit in this bill, however, is that the taxpayer can either claim the credit in the year after he or she buys a first home or the taxpayer can transfer the credit directly to a lender at closing. The transferred credit would go toward helping with the down payment or closing costs. As mandated in the bill, the lender would receive the money from the government in a timely fashion.
What we are proposing, I believe is pretty bold. Senator Smith and I want to work with our colleagues to send a message to lower and middle income people all over the country that if you are working hard to save up enough to get into that first home, the Federal government will make a strategic investment in your family - it will offer a hand up.
This is not unlike what we already do through the mortgage interest tax deduction for millions of people who are fortunate enough already to own their own home.
We certainly won't do all the hard work for you. You must be frugal and save and do most of the work yourself, but we, in Congress, understand that it is good for America to enhance homeownership.
We also understand that this sort of investment in working families stimulates the economy. No one can deny that when the First Time Homebuyers' Tax Credit is enacted and used by millions of people, every single time the credit is used, it will be stimulative.
Why?
Because it means someone bought a house. And that generates economic activity for multiple small business people. Realtors. Lenders. House appraisers. Inspectors. Title insurers. And so on. And there is a ripple of economic activity by the new homeowners as they fix up their new homes and get settled in.
I'd like to thank the National Association of HomeBuilders and Habitat for Humanity today for the support they've offered to the legislation. They join a long list of groups including: the Mortgage Bankers Association of America, the American Bankers Association, America's Community Bankers, Fannie Mae and Freddie Mac, the National Association of Affordable Housing Lenders, and the National Council of La Raza who have all offered their support to this concept of a transferable tax credit.
Mr Chairman, as you know, it is not enough to address the demand-side of housing. That is why I am also a strong advocate of increasing the supply of affordable housing. I have teamed up with Senator Smith, again, this time on a tax credit to spur the revitalization of neighborhoods through development tax credits. I know that Senators Santorum and Kerry, among others, have been strong proponents of this concept and I am glad that the Administration supports this as well. We must eliminate the economic mismatches between current market prices and the costs of rehabilitation if we are ever going to see many of our blighted communities reborn. This is as true in Flint and Detroit as it is in Philadelphia or Portland.
There is absolutely no reason that this Senate should fail to pass a development tax credit bill for these challenged neighborhoods. With bipartisan support in Congress and the backing of the White House, I want to work with all of my colleagues to see such a bill enacted into law in the 108th Congress.
Finally, Mr. Chairman, let me just touch briefly on a critical issue related to homeownership and that is abusive mortgage lending practices. With the rapid rise in homeownership over recent years and with record levels of mortgage refinancing - which involve an increasing number of less creditworthy borrowers entering the market - the problems with predatory lending have grown explosively. To address this problem, some have argued that a Federal law is needed. Others would prefer to let states and localities pass anti-predatory lending laws.
At this time, there is not yet consensus in Congress on additional legislative remedies. While we may differ in our views of appropriate additional legislative measures to address the problem of predatory lending, I think one thing that all of us can agree on is a strong desire to see current laws more effectively enforced. That's why I'm glad that Senator Santorum has joined me in preparing a letter to send to Senate appropriators calling for a doubling of monies at the Federal Trade Commission to enforce anti-predatory lending laws. I am glad that the Ranking Member and others have agreed to sign on and I hope still that other Members of this Committee will decide to join us in sending this letter next Monday.
As all of us know, the Federal Trade Commission (FTC) is one of the principal government entities with an enforcement role over predatory lending. The FTC oversees many relevant laws including the Federal Trade Commission Act, the Equal Credit Opportunity Act, the Truth in Lending Act, and the Home Ownership and Equity Protection Act. I believe that enhanced enforcement would staunch many of these illegal activities and have a chilling effect on future abusive lending practices.
Thank you again, Mr. Chairman for calling this hearing. I appreciate your leadership on this issue and the leadership of Ranking Member Sarbanes. I look forward to working with all of my colleagues on an aggressive housing agenda to keep the housing sector a bright light in what has been a difficult economy.