After months of no action at all, the Senate last week finally got around to acting on a couple of housing bills that will have impact here.
If you recall, I reported on the two-headed dragon (August 25th post) of debt that a foreclosure had become. Not only did you have the foreclosure issue itself on your credit rating, but then the IRS when after you for taxes on the portion of the original debt that the bank had to forgive in order for you to do a short-sale or as part of the foreclosure. so, if you owned $200,000 to the bank and they ended up selling the place for $150,000 and "forgiving you" for the balance. the IRS treated the $50,000 difference as unearned income and taxed you on it. Talk about throwing salt in the wound.
Well our heroes, the hard working men and women of our elected Congress, have come to your rescue. After months of deliberation or whatever it is they do when they take months to pass a "no-brainer" piece of legislation, they have passed the Mortgage Forgiveness Debit Relief Act. That act prohibits the IRS from demanding income taxes from the already financially challenged ex-homeowner whose lender forgave a portion of the debt as part of the short sale or loan modification. The bank may still decide to come after you for the difference or turn it over to a collection company, but at least the IRS won't be joining in on the chorus of people hounding you.
That same bill also extended the deductions that you can take for PMI on your mortgage through the year 2010. That's good news too.
The same week the Senate also passed the FHA Modernization Act, which the House had passed earlier. That act ups the limits on FHA loans, although House and Senate still have to hash out a compromise on just how high that limit can go. right now the Senate version limits the upper end to $417,000, but the House used a floating limit that would allow houses in super expensive areas (read that California and Florida) could float up over $700,000. And to think we were happy locally when the limits went up near $300,000.
I'm sure that there are more bills bubbling through the Congressional process to deal with the foreclosure issue. I think that they've got something cooking on the ARM reset issue that will go beyond President Bush's jawboning of the industry. Just like when they sprang into action to require the labels on lawn mowers that you shouldn't put your hand under the mower while it is running, Congress will save us from ourselves again.