More than 3 million people will have to wait until February to get their tax refunds because of Congress’ late fix to the alternative minimum tax, the IRS said Thursday.

Congress put a one-year freeze on growth of the alternative minimum tax last week, shielding many middle- and upper-middle income taxpayers from first exposure to the tax. But Congress’ late action means the Internal Revenue Service won’t be able to start processing five AMT-related forms until February, delaying potential refunds for those people until that month.

Between 3 million and 4 million people filed in January of last year using those forms, with many of those people expecting a refund, the IRS said.

The average refund in 2007 was $2,324, the agency said.

“We regret the inconvenience the delay will mean for million of early tax filers, especially those expecting a refund,” acting IRS Commissioner Linda Stiff said.

As many as 13.5 million people will have to wait until February 11 to start filing with the five AMT-related forms, but the IRS said filing patterns show only between 3 million to 4 million of those people file during the early tax season anyhow.

The IRS was able to reprogram its computers to begin accepting the seven other AMT-related forms when the tax season opens in early January.

But the tax packages that will start arriving in the mail beginning after New Year’s Day were printed in November, before the AMT fixes were approved by Congress. The IRS has created a special section on its Web site, http://www.irs.gov, with updated copies of AMT forms.

The alternative minimum tax was passed in 1969 and was aimed at about 155 very wealthy families who used deductions to avoid paying any federal income tax. The AMT disallows certain deductions and credits. It was not adjusted for inflation; as a result, over the years it has hit a growing number of middle-income taxpayers.

More than 4 million were subject to it in the 2006 tax year. Without the congressional fix, more than 20 million families would have been faced with an extra $2,000 tax hit on average.

The five forms affected by the delay are:

• Form 8863, Education Credits.

• Form 5695, Residential Energy Credits.

• Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers.

• Form 8396, Mortgage Interest Credit and

• Form 8859, District of Columbia First-Time Homebuyer Credit.

Any taxpayer using those forms will have to wait until February to file their taxes, the agency said. The IRS will begin processing those forms on February 14, and the first refunds for those people will start going out 10 to 14 days later.

More than 100 million people got refunds during the last tax season.

The Federal Reserve endorsed new rules Tuesday that would give people taking out home mortgages new protections against shady lending practices.

The proposed rules, approved in a 5-0 vote by the board, are geared to providing safeguards to the riskiest “subprime” borrowers, already painfully stung by the housing and credit debacles. The proposal is expected to apply to new loans made by all types of lenders, including banks and brokers. The plan could be finalized next year.

The Fed, which has regulatory powers over the nation’s banking system, is proposing:

_restricting lenders from penalizing certain subprime borrowers — those with tarnished credit or low incomes — who pay off their loans early. The restriction would apply to loans that meet certain conditions, including that the penalty expire at least 60 days before any possible payment increase.

_forcing lenders to make sure that subprime borrowers set aside money to pay for taxes and insurance.

_barring lenders from making loans when they don’t have proof of a borrower’s income.

_prohibiting lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

“Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole,” said Fed Chairman Ben Bernanke in prepared remarks. “They have no place in our mortgage system,” he added.

Fed policymakers also are considering requiring financial disclosures to borrowers early enough to use while shopping for a mortgage. Lenders could not charge fees — except for a fee to obtain a credit report — until after the consumer receives the disclosures. The Fed also will consider prohibiting certain types of misleading or deceptive advertising for certain loans. It also would require that all applicable rates or payments be disclosed in ads with equal prominence as advertised introductory “teaser” rates.

In addition, the Fed is expected to propose barring lenders from paying mortgage brokers a fee that exceeds the amount the would-be borrower had agreed to in advance that the broker would receive.

And, the Fed would ban certain practices, such as failing to credit a mortgage payment to a borrower’s account when the company servicing the mortgage receives it. The Fed also would prohibit a broker or other company from coercing or encouraging an appraiser to misrepresent the value of a home.

Before taking effect, the rules must be voted on again following a period of public comment and possible revisions.

The Fed’s response has taken on heightened importance given the meltdown in the housing and credit markets that has led to record numbers of home foreclosures. The crisis has raised the odds that the economy might fall into a recession, roiled Wall Street and given Democrats and Republicans much fodder to blame each other.

The plan, if ultimately adopted, offers Bernanke, who took over the helm in February 2006, an important opportunity to put his imprint on the Fed’s regulatory powers. Some critics have complained that Bernanke’s predecessor — Alan Greenspan, who ran the Fed for 18 1/2 years — failed to act as a forceful regulator especially during the 2001-2005 housing boom, when easy credit spurred lots of subprime home loans and many exotic types of mortgages.

When the housing market went bust, subprime loans were most heavily affected.

Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association from July through September, a record 4.72 percent entered the foreclosure process during those months. At the same time, a record 18.81 percent of the subprime adjustable-rate loans were past due.

When home values weakened, borrowers were left with loan balances that eclipsed the value of their homes. They also were clobbered when their loans reset with much higher interest rates.

AP

Congress by a wide margin approved the first increase in automobile fuel economy in 32 years Tuesday, and President Bush plans to quickly sign the legislation, accepting the mandates on the auto industry.The energy bill, boosting mileage by 40 percent to 35 miles per gallon, passed the House 314-100 and now goes to the White House, following the Senate’s approved last week.

In a statement, the White House said Bush will sign the legislation at the Energy Department on Wednesday.

In a dramatic shift to spur increased demand for nonfossil fuels, the bill also requires a six-fold increase in ethanol use to 36 billion gallons a year by 2022, a boon to farmers. And it requires new energy efficiency standards for an array of appliances, lighting and commercial and government buildings.

“This is a choice between yesterday and tomorrow” on energy policy, declared House Speaker Nancy Pelosi, D-Calif., who was closely involved in crafting the legislation. “It’s groundbreaking in what it will do.”

While some GOP lawmakers criticized the bill for failing to address the need for more domestic oil and natural gas production, 95 GOP lawmakers joined Democrats in support of the bill.

“This legislation is a historic turning point in energy policy,” said Majority Leader Steny Hoyer of Maryland because it will cut demand for foreign oil and promote nonfossil fuels that will cut greenhouse gases linked to global warming.

It increases energy efficiency “from light bulbs to light trucks,” said Rep. John Dingell, D-Mich., a longtime protector of the auto industry who was key to a compromise on vehicle efficiency increases.

Many Republicans denounced the Democratic-crafted bill for failing to push for more domestic production of fossil fuels and for mandates some GOP lawmakers warned will not be possible.

“What we have here is a mandatory conservation bill,” said Rep. Joe Barton, R-Texas. He argued that the auto fuel efficiency requirements and the huge increase in ethanol use may not prove to be technologically or economically possible.

Democrats disagreed. The legislation takes measured and concrete steps that are achievable, said Dingell.

The Senate passed the bill last week after discarding billions of dollars in higher taxes on oil companies and a solar and wind power mandate that opponents said would raise electric rates in the Southeast. President Bush and Senate Republicans opposed those measures.

The centerpiece of the bill remained the requirement for automakers to increase their industrywide vehicle fuel efficiency by 40 percent to an industry average of 35 mpg by 2020 compared to today’s 25 mpg when including passenger cars as well as SUVs and small trucks.

Congress has not changed the auto mileage requirement since it was first enacted in 1975.

Democrats said the fuel economy requirements eventually — when the fleet of gas-miser vehicles are widely on the road — will save motorists $700 to $1,000 a year in fuel costs. They maintain the overall bill, including more ethanol use and various efficiency requirements and incentives, will reduce U.S. oil demand by 4 million barrels a day by 2030, more than twice the daily imports from the volatile Persian Gulf.

The automakers have repeatedly fought an increase in the federal fuel standard, known as CAFE, maintaining it would limit the range of vehicles consumers will have available in showrooms and threaten auto industry jobs. Bush also has argued against an arbitrary, numerical increase in the fuel efficiency requirement, preferring instead legislation to streamline the federal requirements and market incentives to get rid of gas guzzling vehicles.

But the automakers have accepted the political shift toward a tougher requirement. After the Senate approved the legislation last week, the White House immediately said Bush would sign it once it reaches his desk.

“While the president’s alternative fuel standard and CAFE proposal would have gone farther and faster, we are pleased that Congress has worked together on a bipartisan way that provides the chance for the president to sign a bill that does not include tax increases.” said White House press secretary Dana Perino.

The bill requires a massive increase in the production of ethanol for motor fuels, outlining a rampup of ethanol use from the roughly 6 billion gallons this year to 36 billion gallons by 2022. After 2015, the emphasis would be on expanded use of cellulosic ethanol, made from such feedstock as switchgrass and wood chips, with two thirds of the ethanol — 21 billion gallons a year — from such non-corn sources.

However, commercially viable production of cellulosic ethanol has yet to be proven and some Republicans have argued that the new requirements could be impossible to meet and may raise corn prices and food supplies.

The bill requires improved efficiency standards for lighting, commercial and government buildings, and appliances such as refrigerators, dishwashers and freezers. It also tells the Energy Department to issue efficiency standards more quickly.

Democrats failed to get through a broad tax package that they had designed to pay for incentives aimed at spurring the development of wind, solar and alternative fuels such as cellulosic ethanol, as well as energy efficiency and conservation programs.

The package would have rolled back $13.5 billion in tax breaks enjoyed by the country’s five largest oil companies. The tax package passed the House earlier this month, but was rejected in the Senate as Democrats failed by one vote to overcome a GOP filibuster. The White House said Bush opposed singling out the oil industry for higher taxes and that if the taxes were included, he would veto the bill.

___

The bill is HR 6.

AP

Alan Greenspan said he could support the use of public cash to help struggling US homeowners on Sunday, in remarks likely to fuel growing political pressure for a more radical response to the housing crisis.

The former chairman of the Federal Reserve told ABC’s This Week programme the least harmful way of intervening would be to give direct financial aid to distressed homeowners. 

He appeared to criticise the plan brokered by Hank Paulson, US Treasury secretary, for an interest rate freeze on some subprime loans, warning that freezes would protract the crisis, not resolve it.

“Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” Mr Greenspan said.

“It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it’ll drag this process out indefinitely.”

It was vital that policymakers allowed the markets to reach a “selling climax”, after which markets would stabilise and volumes pick up as buyers were attracted back by low prices.

He did not endorse any of the existing plans for more public action.

The remarks came in an interview in which Mr Greenspan said the US – which reported annual inflation of 4.3 per cent on Friday – was seeing the “early symptoms” of “stagflation”.

He said he was “most concerned” about the risk that inflation would move up, particularly in the medium term.

It was “critically important that the Fed is allowed politically to do what it has to do” to keep inflation down.

Mr Greenspan thought the probability of a US recession had “moved up close to 50 per cent” – though he still put it a fraction below the 50 per cent mark.

The minimum likely loss on subprime and related housing securities was now $200bn (€139bn, £100bn), he said, adding that it could be as high as $400bn.

Mr Greenspan said the probability of recession was not higher than 50 per cent because the US corporate sector had taken advantage of the long period of very low long-term interest rates that preceded the crisis to lock in long-term funds at attractive rates and this had insulated business from the credit squeeze.

While ordinarily a sharp tightening in financial conditions “would have been a very major problem for the American economy”, he said, “it is clearly less so today”.

He added that “the credit needs have not been all that large”.

Mr Greenspan also noted that consumer spending remained resilient, in spite of many factors that would be expected to hold it back, such as falling house prices, high oil prices and reduced availability of credit.

But he warned that the US economy was “going to stall speed” and would be vulnerable to additional shocks that could tip it over the brink into recession.

It would be impossible for financial markets to stabilise until there was greater certainty about where house prices would level off, Mr Greenspan said.

This is because most housing-related securities are based on recent vintage loans with only a tiny cushion of home equity, and this makes their value hugely dependent on house prices.

He said prices would begin to stabilise when the rate of liquidation of the stock of unsold homes peaked, rather than when the excess stock was completely exhausted.

Financial Times

The Senate moved Friday against the worsening mortgage crisis, voting to make it easier for thousands of homeowners with ballooning interest rates to refinance into federally insured loans.

The legislation, approved 93-1, would allow the Federal Housing Administration to back refinanced loans for borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial “teaser” levels.

The bill also tries to make FHA loans more attractive than risky subprime loans by accepting lower down payments and expanding the eligibility for counseling for homeowners having difficult with their mortgage payments.

An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to reset in the next year, jumping to much steeper rates that could cost borrowers their homes. The wave could crest during the presidential and congressional election campaigns next year, and politicians have been wrestling with what the government’s response should be.

The Senate’s proposed changes are especially important now, given the credit crisis that has made it much more difficult and more expensive for people to refinance or get financing to buy a home. Private lenders have been reluctant to make new loans.

Allowing the federal government to insure more and bigger loans should help provide some relief and ease the credit crunch.

The Senate’s plan would give homeowners “the option of refinancing to an FHA-backed loan with the peace of mind that comes with it,” said Senate Majority Leader Harry Reid, D-Nev. “And for future homebuyers, a fully backed FHA loan with honest, upfront terms, will help prevent crises like we now face.”

Modernizing the FHA is Congress’ first attempt at stand-alone legislation to ease the subprime mortgage mess. The House passed a bill similar to the Senate’s back in September, but a final measure probably won’t be ready for President Bush’s signature until next year.

Meanwhile, the White House last week announced it had negotiated an agreement with mortgage companies to freeze interest rates for certain subprime mortgages for five years.

White House press secretary Dana Perino said the Senate bill “would give FHA some of the additional flexibility it needs to provide more families with a safe, affordable mortgage financing option.” She said, however, that the president still has some concerns about the bill.

The Senate bill raises the maximum mortgage the FHA can insure in high-cost areas like California and the Northeast from $362,790 to $417,000 — the same level as loans backed by Fannie Mae and Freddie Mac.

The House would raise the maximum mortgage to $729,750 in high-cost areas, with the higher limit a point of contention between the House, Senate and the White House.

The Senate bill would also lower the FHA down payment requirement from 3 percent to 1.5 percent, depending on an assortment of factors, and make it easier for FHA loans to be used to buy condos.

“It is good before the Christmas season we have made a down payment on the solution to this problem,” said Sen. Mel Martinez, R-Fla.

The legislation will help the FHA “be a source of salvation for those families who were tricked into unaffordable loans,” said Sen. Charles Schumer, D-N.Y.

The only senator to vote against the bill was Sen. Jon Kyl, R-Ariz.

Many homeowners have been looking for help from the government this year. Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association in the third quarter, a record 18.81 percent of them were past due. A record 4.72 percent of the loans entered into the foreclosure process during that period.

Modernizing the FHA “will have an immediate impact helping some distressed borrowers who are having trouble paying their current mortgages avoid foreclosure,” said David G. Kittle, the association’s chairman-elect.

The nonpartisan Congressional Budget Office estimated that the Senate’s changes would result in an 8 percent increase in FHA loans — $4 billion annually in additional loan guarantees — over the next five years.

The agency, which has provided mortgage insurance since 1934, currently insures 3.7 million mortgages.

The FHA has been pushing Congress for years for the ability to guarantee more loans, saying the size of mortgages the government agency can back is often too small to attract borrowers in expensive areas. As a result, FHA’s share of the single-family mortgage market has dropped to about 4 percent, down from 19 percent more than 10 years ago.

But most of the increase would not come from people in high-cost areas, the CBO said, but in the less expensive housing markets, where maximum mortgages would be going up from $200,160 to $271,050.

AP