The Wall Street Journal-20080130-Politics - Economics- Lawmakers Offer Plans for Homeowner Refinancing

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Politics & Economics: Lawmakers Offer Plans for Homeowner Refinancing

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WASHINGTON -- Lawmakers, looking for ways to aid homeowners in need of refinancing, are considering raising the caps on how much money states can borrow to finance housing projects, and easing other restrictions.

Several lawmakers, Democrats and Republicans, are recommending raising the limits on tax-exempt municipal mortgage revenue bonds as a way to ease refinancing.

The administration has said it would support a temporary measure.

The state housing finance agencies run mortgage programs so, for example, instead of applying to a bank for a mortgage, one could apply to the housing-finance agency.

States also allocate money to developers to build multi-family housing or apartment complexes.

Sen. Charles Schumer, a senior Democrat from New York, said the concept could show up as part of the stimulus package working its way through Congress.

"We may be able to get it in the stimulus, but if not, it will bode well in the near future," he said. "There will be a housing package beyond the stimulus, and it will be in one of the two."

Sen. Schumer sent a letter last night to credit-rating agency Moody's, urging the company to provide greater clarity in how it rates tax-exempt municipal bonds, the same types of bonds at issue in the refinancing proposal.

Sen. Schumer says the way Moody's currently rates tax-exempt municipal bonds, by using a finer ratings scale, "could lead to higher costs for municipal-bond issuers and ultimately the taxpayers," according to the letter.

A spokesman for Moody's said the company hadn't seen the letter and had no comment.

Gail Sussman, a managing director in Moody's public-finance area, says polls they have conducted with issuers, investors and intermediaries over the years have shown that they want to keep tax- exempt municipal bonds on a more finely graded ratings scale than that of taxable bonds and corporate debt.

Moody's has a comparison table that one can use to cross-reference the ratings, but not specifically for tax-exempt state debt.

"Whether or not we assign a global scale rating doesn't necessarily mean a municipal investor will price the bond any different," Ms. Sussman said. "They're not comparing it to a corporate taxable bond. They're comparing an Idaho school district to an Indiana county, both selling tax-exempt debt."

Sen. Schumer hopes by urging Moody's to provide a comparison table for tax-exempt debt, it would lower costs and encourage states to borrow money to finance new housing and help those needing to refinance.

Currently, municipalities can use money raised from these bonds, which was capped at $28.19 billion in 2006, to fund new single-family mortgages. An idea floated by Sen. Gordon Smith, a Republican from Oregon, and backed by Democratic Sen. John Kerry of Massachusetts, which could be added to the stimulus package, calls for raising the cap by $15 billion over three years as a temporary measure. It would also include refinancings.

Sen. Schumer's plan, which is expected to be discussed today at the Real Estate Roundtable, an organization of owners, lenders and manufacturers, is more expansive than the one being floated by those congressmen, although he says he's supportive of their bill.

He proposes a permanent change, beginning with a $10 billion increase each in 2008 and 2009 and by another $3 billion in 2010.

Sen. Schumer is also pushing to allow the refinancing to extend to multi-residential housing, which would include rentals.

Yesterday, he said he believed others were supportive of including that measure.