Housing Policy
The Senate version includes adjustments to the Hope for Homeowners Program, a loan modification program that has had difficulty attracting lender participation. So far, no loans have been fully modified. Changes designed to attract lender – and homeowner – participation include lowering the amount the government can recoup if a home’s value appreciates after modification and reduced fees for government insurance of modified loans.

More importantly, in an amendment proposed by Senator Dodd, the Senate version requires the Treasury Secretary to develop a mortgage modification plan and mandates that he use $50 billion in TARP funds to carry it out. The provision provides a measure of accountability to Geithner’s promise yesterday to use an equivalent $50 billion sum to prevent “avoidable” foreclosures. Interestingly, the Senate also included a provision that permits Treasury to pay mortgage servicers a fee for modifying mortgages while providing them legal cover from investor suits. As necessary as it may be to incentivize servicer participation in modification programs, the provision essentially pays servicers to modify mortgages without including any test of a modification’s affordability, creating a servicer subsidy that makes subsequent default and foreclosure likely. Indeed, a recent study found that 45% of voluntary modifications increased a mortgagor’s monthly payment.

The House legislation omits foreclosure mitigation efforts, but includes $4.2 billion for the rehabilitation of foreclosed properties into affordable housing. The Senate bill leaves these CDBG funds out.

After pushing for inclusion of housing provisions in the TARP II reauthorization, Rep. Barney Frank has been silent in the stimulus debate, leaving foreclosure mitigation to his Senate-side colleagues.

Health Insurance
The House bill makes some important adjustments to health insurance for the unemployed that the Senate moderates forgot to include. While both bills subsidize COBRA, the federal program that allows unemployed workers to continue enrollment in their former employer’s health plan, the Senate version only pays 50% of an individual’s premium while the House version pays 65%. This is a significant difference: about $672 assuming the average annual premium for single coverage of $4,479. The difference eats up about half the $25 monthly increase in unemployment benefits that both stimulus versions include.

The Senate version also omits House provisions that allow states to offer health insurance to unemployed and low-income individuals through Medicaid, an effort to plug the serious health insurance gap that high rates of unemployment create. A similar measure excluded from the House bill would allow older workers fired from their jobs to use COBRA coverage until they reach eligibility for Medicare (though the subsidized COBRA benefit would only last a single year).

Executive Compensation
The Senate version follows President Obama’s commitment to executive pay limitations and commits it to legislation. Though enforcement of restrictions on compensation ($400K for executives), clawback provisions, and prohibitions on golden parachutes – along with promulgation of the rules to guide this enforcement – will limit the effectiveness of these provisions, inclusion of executive pay limits provides an opportunity to hold President Obama’s commitment to improved corporate governance to task. Say-on-pay provisions, even if nonbinding, are a particularly important means of engaging shareholders against often intractable boards of directors.

The House includes no such provisions.

Tax Breaks
The Senate amendment process allowed two ineffective, and potentially dangerous, tax breaks to slip into the stimulus package. One would provide a $15,000 tax credit to all homebuyers and the other would allow taxpayers to deduct loan interest and sales tax on auto purchases. Both fail to target their benefits to individuals at the margin who are likely to purchase a house or a home only if they are provided the credit/the deduction. Worse, in the long run, the housing credit could unnecessarily inflate housing prices (and encourage speculation).

The House did not include the auto loan deduction, but did include a version of the homebuyer credit. The House’s credit is targeted only at first-time homebuyers and essentially changes a government-sponsored interest-free loan into a tax credit. The House version might be the lesser of two evils.

Refundable Tax Credits
Senate policymakers generally made the House’s tax credits less targeted to the lower-income households most likely to spend the extra money. Only 30% of the Senate’s American Opportunity education tax credit – that provides a maximum $2,500 for higher education – is refundable, while 40% of the House’s is. The income requirement for receiving a refundable child tax credit is dropped in the House version, but only lowered (to $8,100) in the Senate’s. The refundable portions of these credits essentially allow low-income households to receive refund checks from the government (so the same number of households will receive a smaller refund from the education credit, but fewer households will receive the child credit). The Senate’s alterations aren’t enormous, but ultimately put less money in the hands of the lower-income households most likely to spend it.