Changes To Conforming & Jumbo Loan Limts For 2008 - More Market Chatter AGAIN!

From a colleague:

The economic stimulus plan drafted by Senate Democrats was blocked by a Republican filibuster last night when the Senate fell a single vote short of the 60 needed to consider the measure. Now what? Since it is so close, experts believe that it nearly ensures passage of the House’s less expensive stimulus plan, though the Senate may make some changes. The Senate version was backed by automakers, home builders, realtors and mortgage bankers, and the AARP. Senate Republican leader Mitch McConnell of Kentucky said the Democratic stimulus bill passed by the Senate Finance Committee was "a Christmas tree of legislative goodies'' that Bush might not sign. The alternative proposal passed by the House last week could be approved quickly and would be signed, he said, but Democrats face an uphill battle to get the 60 votes necessary to advance the more expansive Senate package in a procedural vote expected today. An interesting civics lesson, since I have forgotten most of what I learned in high school…

From Goldman Sachs:

The Senate failed to pass its fiscal stimulus bill last night, coming up one vote short. This was not a surprising development, and we suggested this outcome in our note on Monday (link below). Despite these negative headlines, the process is still on track – in fact last night’s developments may speed enactment – and still expect stimulus legislation to become law soon. Tax rebates, bonus depreciation for businesses, and a GSE/FHA loan limit increase are very likely to be enacted, perhaps as soon as late next week.

1. The Senate's failure to pass a much different version of stimulus legislation may speed the process up. This is because reconciling differences between competing House and Senate versions would have taken days if not weeks. The House-passed bill was a slimmed down measure including only tax rebates, bonus depreciation for businesses, and increased loan limits (up to $730k) for Fannie, Freddie, and the Federal Housing Administration. By contrast, the Senate included all these things plus additional spending and even more tax breaks for businesses, some targeted at specific industries.

2. The House bill, or something close to it, looks likely to become law. The Senate is likely to pass the House-passed legislation, now that it has failed to pass its own. Before the Senate passes the House bill, one change looks likely: the Senate may add rebates for certain individuals with 'unearned' income. This would increase the amount of rebates in 2008 from $100 billion to $115 billion. Along with bonus depreciation, this brings the likely total cost to around $160 billion.

3. The Senate is likely to pass stimulus legislation by the end of the week. Senate Majority Leader Reid (D-NV) has said he may try to force one more vote on the Senate's stimulus measure in the hope of finding one extra vote. This is possible, but these efforts usually don't succeed, so we would expect the Senate to cast its final vote on stimulus legislation it will pass by the end of this week (possibly today). Majority Leader Reid will announce next steps at around 10:30am today.

4. Stimulus could still be enacted by the end of next week. If the Senate manages to send the House a bill by the end of the week, the House will pass the slightly revised version in the middle of next week and then send it to President Bush for signature. The only risk to this timing is if Democratic leaders attempt to make further changes to the bill, which could result in further delays in the Senate.

5. The legislative wrangling has little impact on timing of stimulus. We don't expect a significant delay. But even if the bill is held up in negotiations, the IRS has made it clear that there is little it can do to process rebates before the tax filing season ends on April 15. This means rebates aren't likely to make it to consumers until sometime in mid- to late May. A long delay could affect the timing of rebates, but a delay of a couple of weeks would be unlikely to make a difference in when rebates are mailed.

6. The differences between the House and Senate are of most interest to certain industries. Homebuilders and alternative energy manufacturers would have benefited from tax provisions that only the Senate bill included. These now look less likely to make it into the final version. Also, only the Senate bill would extend unemployment insurance (UI). While the final stimulus bill looks likely to omit this provision, an extension later this year looks likely, assuming unemployment rises as we expect. For more on the details of the House and Senate versions, see Politics & Policy 08/07