Congress has approved legislation that would waive tax liability for borrowers whose mortgage balance is reduced through foreclosure or loan modification.
The U.S. House of Representatives announced Tuesday it approved H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007. The bill included an amendment by Senate Finance Committee Chairman Max Baucusa.
In addition to a 3-year amendment permanently waving tax liability for debt forgiven following mortgage foreclosure or renegotiation, the bill extends the tax deductibility of private mortgage insurance for three more years and eases restrictions for qualifying as housing cooperative corporations.
Triad Guaranty Insurance Corp. applauded passage of the legislation, noting the mortgage insurance provision will provide savings low- and moderate-income borrowers and makes mortgage insurance more attractive.
"Current law treats forgiven mortgage debt as income, but it is simply unfair and unconscionable that families would have to suffer through a foreclosure only to be dealt a second blow in the form of a tax bill when their net worth has not increased," said Ways and Means Committee Chairman Rep. Charles B. Rangel, who authored the bill, in the announcement.
The U.S. Senate, which ushered through its own version of the bill, S. 1394, the Mortgage Cancellation Relief Act of 2007, unanimously approved the House version of the bill last week. The Senate's original bill was sponsored by Senator Olympia J. Snowe.
"Homeowners who restructure their mortgages to avoid foreclosure should not be hit with a tax bill as a result," Treasury Secretary Henry Paulson said in a statement. "Preventing avoidable foreclosures will reduce the impact of the housing slowdown on homeowners, our communities, and our economy."
Passage of the legislation was hailed by the National Association of Home Builders, which noted President Bush is expected to sign it. The group explained that un-taxable forgiven debt will be capped at $2 million and only apply to primary residences.
The bill is now headed to the White House for the president's signature.