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(Washington D.C.)- The House of Representatives today approved H.R. 3648, the Mortgage Debt Forgiveness Relief Act, to help address the subprime lending crisis and ongoing turmoil in the housing market. The Senate approved H.R. 3648 on December 14th, and today’s vote sends the measure to the President.
Included in the bill was a provision authored by Rep. Sander Levin (D-MI) to extend the deductibility of mortgage insurance premiums. The provision would allow homeowners who purchase mortgage insurance to deduct their premiums from their taxable income. Home loans backed by mortgage insurance from the Federal Housing Administration, the Department of Veterans Affairs and private insurers typically require lower down payments.
“Mortgage insurance allows aspiring homeowners to take out safe, stable mortgages with lower down payments and provide an attractive alternative to so-called ‘piggyback’ loans. It levels the playing field among different mortgage options,” said Levin. “Making mortgage insurance more affordable will help millions of families afford the American Dream of homeownership.”
Also included in the legislation approved today is a provision that provides relief to families who have lost their homes through foreclosure, or who have negotiated partial forgiveness of their mortgage in order to stay in their homes.
Under current law, forgiven mortgage debt is classified as income, and requires that income tax be paid on it. In the case of a foreclosure, individuals would owe income tax on the difference between the outstanding principal on their mortgages and the amount their lenders earn by selling their homes.
“It is simply unfair that we send people a tax bill when they lose their home to foreclosure, and this legislation will correct that,” said Levin.
The legislation approved by Congress would eliminate this unfair tax retroactively for tax year 2007 through tax year 2009. The deduction of mortgage insurance premiums will be allowed through 2010. Congress has the option to renew these measures in the future.
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