Tax relief proposed for homeowners in foreclosure
President Bush has proposed expanding the reach of the Federal Housing Administration (FHA) in an attempt to provide some relief for homeowners who can't meet their mortgage payments. He has also suggested that the government should stop taxing the benefit some homeowners receive when mortgage debt is forgiven.
In a Rose Garden news conference on Friday, the President stated, "It's not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford. Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders, or a little help from their government."
Designed to help homeowners who were making regular mortgage payments on sub-prime loans but who can't afford the higher payments now that the introductory rate expired, the Bush plan would allow more borrowers to qualify for mortgages with the FHA, either as first-time homeowners or to refinance existing mortgages, and would offer a new FHA option for homeowners who are falling behind on payments due to an increase in their monthly payment.
Bush also supports a bipartisan bill introduced by Senator Debbie Stabenow (D-MI), Senator George Voinovich (R-OH) and others which would change the tax code so that income tax would not apply to forgiveness of mortgage debt. The legislation is the "Mortgage Cancellation Relief Act of 2007" (S 1394). Similar legislation has been introduced in the House.
Finally, the President is recommending that lenders develop "a foreclosure avoidance initiative" to help borrowers who are seeking refinancing options.