Amid daily headlines of a worsening housing crisis, debt-burdened homeowners are looking to two pieces of congressional action that could ease the pain.
Monday's headlines stated that new home sales fell by 26 percent last year, which is the biggest drop since 1963, the U.S. Department of Commerce says. And last week's headlines said sales of previously owned single-family homes took a dive - the biggest annual drop in 25 years. Meanwhile, about a quarter of all subprime mortgages are in default.
As more and more homeowners face the very real prospect of foreclosures, Congress last month passed the Mortgage Forgiveness Debt Relief Act. Also, Congressional Democrats say an economic stimulus package - centered on $100 billion in tax credits for about 117 million families - is headed quickly for a vote. They aim to get the package to President Bush by Feb. 15.
Some features of the Mortgage Forgiveness Debt Relief Act:
- It reverses a tax policy that treated forgiven housing debt as taxable income on federal tax returns. According to The New York Times, if a homeowner sold a house for less than the mortgage amount in 2007 and the lender forgave the remaining debt, the borrower no longer has to list that amount as taxable income. The amount of forgiveness is up to $2 million or $1 million for a married person filing separately. "When you remove the impediment of paying taxes on that so-called profit, it's a big help," said Colleen Hernandez, executive director of the Homeownership Preservation Foundation, a nonprofit organization that provides counseling for borrowers facing foreclosure.
- It allows some homeowners who bought last year (with an adjusted gross income of less than $100,000) to deduct the amount of premiums they pay for private mortgage insurance, or PMI, which is required by lenders when the down payment is less than 20 percent. The deduction was allowed for the first time for the 2007 tax year, and the new law extends it through 2010.
- It allows a widowed spouse to exclude up to $500,000 in capital gains on the sale of a principal resident if the house is sold within two years of death.
President Bush, in signing the legislation, said, "There's more work to be done." He said Congress should pass legislation that allows state and local governments to issue tax-exempt bonds for refinancing existing home loans.
Congressional Democrats are also hammering out details of an economic stimulus package that would include tax rebates of up to $600 for individuals and up to $1,200 for couples. Families would receive an additional payment of $300 per child. Rebates would come by May at the earliest.