Senate unlikely to up mortgage bond cap: Schumer

WASHINGTON (Reuters) - The Senate will likely drop a measure to issue additional tax-exempt mortgage bonds from its fiscal stimulus package, but the bonds will appear in a future bill, the chairman of the Joint Economic Committee of Congress told Reuters on Wednesday.

Democratic Sen. Charles Schumer, of New York, said the amendment allowing state and local governments to issue an extra $10 billion in mortgage revenue bonds over three years will probably not survive a vote on the stimulus bill expected in the Senate on Wednesday afternoon.

Schumer said members of the Republican Party oppose changing the bond program, even though President George W. Bush has also suggested modifying it to spur the economy .

"I've talked to Secretary Paulson and we're going to work together to try to pass something," said Schumer at the Reuters Regulation Summit regarding discussions with Treasury Secretary Henry Paulson on future bills.

State and local governments can use tax-exempt mortgage bonds to provide low-interest-rate new mortgages, but they are limited in how many bonds they can issue each year.

In December, Bush suggested raising the cap and loosening restrictions on the bond program to include refinancing subprime loans with tax-free debt in order to address the housing market downturn.

The House of Representatives did not include the bonds in the stimulus package it passed last week. Bush, though, suggested lifting the cap by $15 billion over three years in the budget he sent to Congress this week.

The mortgage bonds are considered private activity bonds, which can also fund development and student loans. In 2008, the cap on private activity bonds was about $32 billion, according to the National Council on State Housing Agencies.

(Reporting by Lisa Lambert; Editing by Tim Dobbyn)