Savings Incentives Gaining Support in Congress
 America’s
personal savings rate is abysmally low. Last year the U.S.
personal savings rate was negative (the lowest annual rate
since the Great Depression). The need to strengthen savings
through a variety of means, including home ownership, in
gaining increased recognition and support in Congress.
A bipartisan Congressional Savings and Ownership Caucus was
created in 2005 to help drive various proposals to achieve
those objectives. It is Co-Chaired by Sen. Rick Santorum
(R-PA), Sen. Kent Conrad (D-ND), Rep. Jim Cooper (D-TN),
Rep. Phil English (R-PA), Rep. Harold Ford, Jr. (D-TN) and
Rep. Tom Petri (R-WI). The Caucus’s focus is on legislation
promoting retirement security, improving educational
attainment, increasing financial literacy, and increasing
household savings. According to caucus cochairman Santorum,
“Legislation that provides incentives for ownership and
asset-building is critical as we look for innovative ways to
address poverty.”
Several proposals have already been enacted. Legislation
passed in this Congress enables taxpayers to split federal
tax refunds, directly depositing selected amounts into IRAs
or other similar accounts. Another new law facilitates
automatic enrollment in company 401k plans, something that
substantially benefits most employees since the majority of
employers match employee 401k contributions to varying
degrees and levels. “We are delighted to see members of both
parties in Congress working together on worthy initiatives
such these,” noted American Homeowners Grassroots Alliance
President Bruce Hahn. “Both the bipartisanship and the
recognition that we need to do more to help those at the
lower end of the economic scale build savings through
expanded home ownership and other avenues is refreshing”.
Pending are several bills that will help savings through
home equity accumulation and other techniques:
●
The Community Development Homeownership Tax Credit Act (S.
859), sponsored by Senator Kennedy and Senator Santorum,
provides tax incentives to stimulate the construction of
affordable single family homes.
●
The American Savings for Personal Investment, Retirement and
Education Act (“ASPIRE”, S.868 & HR 1767), sponsored by
Senator Santorum and Senator Schumer, and in the House of
Representatives by Representatives Ford, Kennedy, and
English, creates one time savings endowments of $500 for
every child, plus a supplemental contribution of an
additional $500 per child in households earning below the
national median income. They can be used for college or
vocational training, buying a first home, or retirement
savings. Similar approaches have also been endorsed by
Senators Sessions and Clinton. The United Kingdom recently
enacted a similar program – the Child Trust Fund
– establishing a savings account at birth for each of the
700,000 kids born in the UK every year. Already, over 2
million accounts have been opened.
●
The Savings for Working Families Act
(S. 922, Sponsored by Senators Lieberman and Santorum)
creates Individual Development Accounts (IDAs), which
encourages ownership among low-income individuals by
offering them matches for their own savings, and by
rewarding monthly savings of working-poor families who are
trying to buy their first home or pay for post secondary
education.
Unfortunately the outlook for enactment of these three
worthy proposals in the lame duck, post election session of
Congress is not great. The problem is not specific
opposition to these measures but rather Congressional
priorities. Other long standing and broadly supported tax
deductions are soon to expire and they will most certainly
have to be addressed first.
 Among
them is the state and local sales tax deduction option,
which allows people in states with no state income tax, such
as Florida, Texas, Nevada and Washington, to instead deduct
from their federal taxes their state sales tax. Two other
popular deductions claimed by millions of people have also
not been extended: a deduction for college tuition, and
another deduction that applies to expenses of elementary and
secondary school and other educators. Another widely
supported business tax break, the tax credit for business
research and development is also about to expire. While
support for extending all three breaks appears strong, they
could get caught up in Congressional politics if lawmakers
seek to attach them to more controversial legislation, such
as a minimum-wage increase and estate-tax reductions.
“While passage of the Community Development Homeownership
Tax Credit Act, the American Savings for Personal
Investment, Retirement and Education Act, and the Savings
for Working Families Act, will probably not occur in 2006,
homeowners and other taxpayers should not be discouraged,”
said AHGA’s Hahn. “Support for new concepts takes time to
gestate…homeowners and other consumers who would like to see
these bills become law should urge their Senators and
Representatives to sponsor and support them anyway. If we
start pressing more legislators to support them now, we will
be increasing the likelihood that they will become law in
the next Congress.”
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Momentum for TV
Services Competition Grows
California recently became the eighth state to either pass statewide
television franchising rules allowing new competitors to
local cable TV monopolies, or make other reforms that will
speed local television franchising competition this year.
Five other states already allowed statewide TV franchising
prior to 2006.
With a 2006 multi-city study revealing an average $20 drop
in monthly cable TV subscription rates when competition was
introduced, the potential annual savings for homeowners in
markets where there presently is no competition is $240.
Pending federal legislation would speed TV services
competition in the remaining 37 states.
Support for the California measure was overwhelming. The
California Assembly passed the measure by unanimous vote for
in May, and the Senate voted 33-4 in favor in September.
The new statewide cable franchising rules will sweep away an
obsolete, time-consuming regulatory process and open up
cable competition throughout California. The bill allows
telecommunications companies to receive a single statewide
permit for television services instead of
having to apply for individual permits with cities and
counties. Rather than negotiate with every municipality
separately, new competitors can move into local markets much
faster and with less red tape.
To keep a level playing field the California legislature
also allowed TV cable companies to opt in to the statewide
franchising system. This will help create a broader
competitive sector for integrated phone, television, and
Internet services.
A bonus is that many of the new television services
providers will utilize fiber optic technology to deliver TV
services, and that same fiber optic cable can also deliver
far faster Internet speeds than are currently available
through DSL or dialup. In a world where the demand for
Internet speed is growing rapidly, that will be a bonus for
technology oriented home businesses, teleworkers, and many
other emerging applications such as telemedicine.
In signing the legislation Governor Schwarzenegger observed
that "Increased competition will translate into better
service and lower prices for everyone….(It) will add another
significant player into the cable television marketplace and
help speed the spread of new and innovative technologies
across the state."
The passage of the California TV franchising bill
illustrates the bipartisan and bicoastal support for more
competition in TV services. In California the bill was
passed by a democratically dominated legislature and signed
by a Republican Governor. On the opposite coast, in
Virginia, a video franchise bill was passed earlier this
year by a
republican dominated legislature and signed by a Democratic
Governor.
The challenge remaining is that homeowners in many of the 37
other states are still paying bloated monthly TV service
fees to local cable TV monopolies. Consumers in Texas,
Indiana, Kansas, Virginia, New Jersey, North Carolina, South
Carolina, and now California have, or soon will have,
more choices and in most cases lower subscription fees as a
result of 2006 state legislation. They join Alaska,
Connecticut, Hawaii, Rhode Island, and Vermont, who allowed
statewide TV franchises prior to 2006.
Unless similar federal legislation enabling
nationwide TV services competition passes in this Congress, it
may take a long time before consumers in other states have
the same benefit.
Fortunately the U.S. Senate will have the chance to pass a
federal bill that will create TV services competition in the
other 37 states when it returns for a “lame duck” session of Congress
after the November election. The U.S. House of
Representatives has already passed television franchising
competition legislation (H.R. 5252), and the Senate Commerce
Committee has passed it as well. All that remains is for the
full Senate to act when it returns after the election.
The barrier to Senate action is a possible filibuster during
the lame duck session. Under Senate rules, opponents can
prevent a vote by talking against it as long as they want,
unless at least 60 of the 100 Senators vote to stop a
filibuster. Although a majority of Senators support the
measure, there is also other “must do” legislation pending,
and a filibuster could take up more time than the Senate can
spare. However if voters can persuade the 3-7 undecided
senators to come out in support of the measure, there will
be enough votes to stop a filibuster and pass a national TV
services bill that will bring consumer savings and
competition to the remaining 37 states this year.
Saving $240 a year on cable TV costs would be of great help
to most homeowners. You can help make that happen by
contacting both of your Senators during the recess and
urging them to support a floor vote and oppose a filibuster
on H.R. 5252. You can
click here to get their email and snail mail
address, as well as Washington and home state office phone
numbers. With many running for election you may also have
the chance to ask for their support at a campaign event near
you between now and the election.
Even if H.R. 5252 passes this year, more work in this area
remains for the next Congress. The cost of bringing reliable
high speed broadband TV and other services to rural
homeowners and other consumers still remains prohibitive.
These services are becoming ever more important in our
society, and the new Congress will need to find ways to make
these services available to all consumers at an affordable
price.
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Regulators Issue New
Rules for 'Exotic' Mortgages
Federal banking regulators announced on September 29 new
guidelines for lenders to follow for several kinds of
nontraditional mortgages that are potentially very risky for
borrowers.
These include interest only and payment-option loans which
can result a growing mortgage balance. Both have been
available for some time, but in recent years of rising home
prices these nontraditional loans have been used
increasingly by borrowers who could not qualify for a
traditional loan. Some economists believe that they have
also contributed to the rapid run-up in home values.
The guidelines will require lenders to take into account not
only the borrowers ability to make the initial payments, but
also their ability to pay off a loan balance that may have
increased because of negative amortization. The Office of
the Comptroller of the Currency also intends to require new
consumer disclosures that will provide prospective borrowers
proposed illustrations of just how much their mortgage
payments may increase over the life of the mortgage. It is
also issuing lender guidelines for assessing credit risk on
home-equity loans.
Most homeowners who could only qualify for exotic kinds of
loans when they bought three or more years ago have done
very well. Thanks to the unusually high home appreciation up
until last year they have built up substantial equity in
their homes. Many have now increased their incomes and can
afford to refinance using a safer fixed rate product
(something they should do soon, while mortgage rates are
still low). Even those that cannot afford to do so will be
able to net a substantial profit if they are unable to meet
higher payments when the mortgage adjusts and are forced to
sell.
However, the marketplace has changed dramatically over the
last year. Home resale prices are falling in many areas, and
it will be some time before most areas start seeing home
appreciation again. As a result, these nontraditional loans
have become far more risky than they were a few years ago.
There is a much greater risk that buyers using these loans
will find themselves underwater (owing more on the mortgage
than the market value of the home), and home buyers who use
a nontraditional loan in the future are at much greater risk
of foreclosure and bankruptcy.
For these reasons the American Homeowners Foundation (AHF)
believes that these new rules are timely and badly needed.
Even though many bankers oppose the rules, they will benefit
as well if the rules help avoid a surge in foreclosures.
This is the wrong market for interest only and negative
amortization loans. Today’s first time buyers are very
unlikely to miss out on any significant appreciation if they
hold off another year or two. They are far better off saving
for a larger down payment while they wait for the market to
bottom out over the next year or two before they buy.
AHF believes that these new rules should be incorporated
into state laws and/or regulations and the Truth-in-Lending
Act and/or the Real Estate Settlement Procedures Act. This
will assure that unregulated lenders not covered by these
new federal rules have to follow the same guidelines.
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Tougher Standards
for Real Estate Agents Set
New real estate agents will
soon need more classroom education before they can be
licensed as a result of recent legislation.
Currently a prospective agent need only complete one real
estate principles class before they take the state's real
estate exam in California. The new state law will require
them to complete two more classes before they can be
licensed. Stronger real estate agent licensing requirements
have long been advocated by the American Homeowners
Grassroots Alliance and other consumer advocacy
organizations. In most states educational standards for real
estate licensing are less stringent that those for
beauticians. AHGA believes that higher entry standards will
result in better service to consumers and will help reduce
the number of consumer lawsuits against real estate brokers
and agents every year.
The California action is noteworthy for several reasons.
California is the largest state and often a bellwether for
other states. In addition, the legislation was supported by
the California Association of Realtors (CAR). Other state
real estate associations have not been keen on raising
professional entrance requirements, focusing instead of
legislation or regulations that prohibit commission rebates
to home buyers or sellers, and/or legislation or regulations
that undermine the growing number of discounted real estate
service models.
California homeowners owe thanks to CAR for recognizing the
need for strengthened real estate licensing standards. "AB
2429 will increase the foundational knowledge of sales
licensees entering the profession and prevent ill-equipped
licensees from engaging in licensed activity," according to
CAR president Vince Malta. Higher entry standards should
also help reduce the surge of inexperienced new agents that
occurs during real estate sector boom times. Most of those
new agents drop out of the field within a year anyway.
Experienced and knowledgeable agents are often too busy to
mentor the newbies, and consumers often suffer because of
the low quality of service.
Support for higher entry standards is deep among experienced
real estate agents as well as consumer groups. The poorly
trained new agents make mistakes that often reflect badly on
the profession, and they siphon off clients that would be
better served by more experienced agents as well. Although
higher standards will probably reduce the supply of real
estate agents, that shouldn’t hurt competition in the U.S.
full service real estate sector, where there are currently
over a million real estate agents. As one very experienced
and highly respected real estate agent told AHGA, “I’m
spending way too much of my time prospecting for clients and
listings, in part because of the churning of new agents.
Homeowners would be better off if the experienced agents
could devote more of their time to use their other
considerable real estate service skills to help clients.”
AHGA would like to see other states follow California’s
example. There are some obvious areas where educational
content could be expanded. Data from the National
Association of Realtors annual Legal Scan suggests that
consumer lawsuits could be reduced by additional educational
emphasis on disclosure and agency law, which together
constituted nearly 50% of all lawsuits related to home sales
transactions. The number of disclosure-related lawsuits
could also be reduced by changing state laws to require that
real estate disclosures be made as soon as the consumer
expresses interest, rather than after the fact, as is the
case in many states. Hopefully other state legislators and
other state real estate associations will follow both CAR’s
lead and AHGA’s suggestions, and support higher educational
standards in their state.
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When it comes to legislation and regulation many
homeowners sit on the sidelines and watch as their future
is decided for them. Others weigh in on the issues important
to them, and often one letter, email or phone call can make
the difference.
Are any of the issues in this month's Home Base of interest
to you? If so, please take the time to contact your
legislator and express your views. It's easy - you can reach
your legislator in a couple of mouse clicks, and you can use
the content in Home Base on our website to help you develop
your message. To look up the phone number and send an email
to your U.S. Representative or your U.S. Senators,
click here. The site can look up their names by zip code
for you if you don’t know them.
Many legislators also reserve office hours when they are
available in their home state or home district offices to
meet with constituents to discuss policy issues. You may be
able to arrange a personal meeting while they are home
on weekends or when Congress is not in session.
To find out federal
legislator’s availabilities for constituent meetings, you
can use our congressional search tool to look them up by
name or zip code, and contact their offices by email, phone,
or fax. Alternatively you can simply call the Congressional
switchboard at 202-225-3121 and ask to be connected to your
representative or either of your senators by name.
Are you interested in an issue that is important to you and
significantly impacts home owners or home ownership?
Any member may propose a position on an issue, so please
check the American Homeowners Grassroots Alliance's
2006 policy priorities. If your favorite position
isn't on the list, please send us an email and tell us why
you think the American Homeowners Grassroots Alliance should
be working on it.
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