Congress continues to work on certain key aspects of an economic stimulus package to provide relief to the residential real estate market. As home prices have fallen 25 percent since the housing bubble peaked in 2006, representing a $6 trillion loss in wealth and approximately 2.2 million homes went into foreclosure in 2008, (analysts predict that number could hit a record four million this year), the proposed legislation is aimed at sparking a housing recovery by 1) lowering interest rates for mortgage loans and 2) a providing a substantial tax credit for home buyers.

“Most people recognize that housing itself is at the root of the current economic downturn,” said Mitch McConnell of Kentucky, the Senate Republican leader. “We should fix this problem before we fix anything else.” Mr. McConnell has proposed that the federal government subsidize mortgages with a fixed interest rate of 4 percent to 4.5 percent. Fannie Mae and Freddie Mac, the two government-controlled mortgage-finance companies, would use their buying power in the mortgage market to drive the rates down. Senate Republicans are expected to introduce an amendment to the bill that would make mortgage loans available at an interest rate of as low as 4 percent.

Another measures specifically aimed at the housing market currently in the bill include an extension of the $7,500 first-time homebuyer tax credit and eliminating the current repayment requirement, and an increase to Federal Housing Administration loan limits. The first-time homebuyer tax credit is essentially a no-interest loan against future tax liability, because it must be paid back in subsequent tax years. Many in the industry say that has rendered the program ineffective.

However, the Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession. The tax credit would give buyers 10 percent of the price of a primary residence bought within one year, up to $15,000. This tax credit does NOT require a repayment.

Senator Johnny Isakson, Republican of Georgia, a former real estate broker, who was the prime sponsor of the homebuyer credit, said it was modeled after a similar, $2,000 homebuyer incentive that helped lead the country out of recession in 1975. “We do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what’s happening now. Within one year of the inception of that tax credit, two-thirds of the available inventory that was on the market was gone. The market moved back to a balanced inventory, values stabilized and things became very healthy. The only reason I know all of that is I was selling houses in 1974, that’s what I was doing to feed my family and make a living.”

“[The current proposed bill] is short on housing initiatives,” said Mary Trupo, public issues director of legislative and regulatory Affairs for the National Association of Realtors. “But those two components will help increase liquidity and bring buyers back to the market.”