Treasury Dept. Unveils Program To Fund Mortgages

The Treasury Department recently unveiled new plans to help more first time homebuyers get approved for mortgage loans. They are hoping to begin selling HFA bonds to the federal government in order to fund additional loans for struggling homebuyers. I’ve included a clip of an article from NPR.org explaining the Treasury Department’s new announcement, but you can read the full article here.

In a normal year, the so-called HFAs, or housing finance agencies, finance about $15 billion worth of mortgages, but the credit crisis has made it difficult for them to raise money for the loans.

Basically, the HFAs work like an affordable housing bank, says Steven Spears, acting executive director of the California Housing Finance Agency.

He explains that the agencies issue tax-exempt bonds to Wall Street and then the HFAs use the money to make loans. But investors have become reluctant to put their money into anything related to mortgages, especially in parts of the country, such as California, where home prices have fallen significantly since the market peak in 2006.

"They were just not interested," Spears said, explaining that his agency has been out of lending capital for a year now.

"Two years ago we had record lending, he said. "We had $1.7 billion in mortgages for first-time homebuyers. We're not making any loans at all really right now."

Treasury's plan is for the federal government to buy the bonds from HFAs, who will in turn have the money to lend to first-time homebuyers such as Natasha Henry, who is looking to buy a foreclosure in Boston's Dorchester neighborhood.

Obama Drops Plan for Corporate Tax Increase

While still looking for a way to fund health care reform, the Obama administration has dropped a plan to raise over $200 billion by changing a series of tax laws affect multinational corporations. According to the Wall Street Journal, the main reason the White House was hoping to make the change was because of their need to find new sources of federal revenue to fund their increased spending.

Jason Furman, a White House economic adviser, made that point clear at the end of a session with a dozen or so lobbyists in March. Catherine Schultz, head of tax policy at the National Foreign Trade Council, who was at the meeting, says Mr. Furman basically told the group: "We need the money."

From early on, there were reservations about the proposal among key lawmakers, and the White House indicated it was open to alternatives. Prominent members of the House Ways and Means Committee from both parties worried the provision would erode the competitiveness of U.S. companies abroad.

The tax dispute is rooted in an unusual provision in the U.S. tax code. Nearly all industrialized countries tax domestic companies only for revenues earned at home. The U.S. taxes companies on world-wide profits. But current U.S. law allows American multinationals to defer paying taxes on revenues earned abroad until companies repatriate them, usually in the form of cash dividends to the parent company.

Critics long have complained that the provision encourages companies to avoid U.S. taxes by expanding production on foreign soil. On the campaign trail last year, President Barack Obama promised repeatedly to "end tax breaks for companies that ship jobs overseas."

House Democrats Give Shape to Tax-Cut Plans

From the Washington Post:

House Democrats yesterday offered a more detailed analysis of a $275 billion tax-cut plan that gives two-thirds of its benefits to individual taxpayers, part of the $825 billion stimulus package they hope to send to President-elect Barack Obama before President's Day.

After tinkering with Obama's proposals, Democrats on the Ways and Means Committee released a plan that focused relief on individuals, reducing the amount of tax cuts intended for businesses that the incoming administration initially requested. The cuts would be phased out after two years.

The Senate Finance Committee is expected to release its own tax plan, which will be similar in scope but likely to include differing details, soon. The tax cuts could grow to nearly $350 billion if congressional leaders eventually add a provision that keeps upper-middle-class workers from creeping into a tax bracket that was originally designed to ensure the wealthiest families did not shelter too much of their income from the Internal Revenue Service.

The House Democrats' package includes $145 billion worth of income tax cuts for most Americans, $500 per year for individuals and $1,000 per year for families, which would mostly occur by reduced withholdings from paychecks. Another $32 billion in relief comes from increasing the eligibility for child tax credits and a new credit for college tuition. Under the House Ways and Means Committee plan, small businesses would be allowed to write off up to $125,000 in capital expenditures, costing the Treasury an estimated $41 billion -- the largest benefit given to businesses.

The tax package also includes an unusual credit to businesses that hire unemployed veterans or "disconnected youth," a credit for the first 40 percent of $6,000 in their wages. As defined by House Democrats, disconnected youth are those who are 16 to 25 years old, out of school at least six months and not working.