A $15 billion bipartisan housing mortgage relief package was introduced on the Senate floor last week. The Democratic and Republican legislation includes funding to help homeowners perform a mortgage refinance of existing unaffordable subprime mortgages and adjustable rate mortgages in order to avoid further foreclosures.
Included in the bill are huge tax breaks for homebuilders, as well as new tax credits and deductions for home buyers and homeowners. Additionally, the mortgage loan relief package also includes measures that make Federal Housing Administration (FHA) insured loans more accessible to home loan borrowers with weak credit.
The present housing and mortgage environment is in flux needing immediate government resuscitation. The congressional package reflects the desire of both political parties to find solutions to the current situation. Also, the bill includes a measure that permits bankruptcy judges to lessen residential real estate mortgage debts, and a measure that lets the FHA insure up to $400 billion in problem mortgage loans if mortgage lenders agree to write them down to affordable levels for borrowers.
However, the majority of the bill funding, up to forty percent will fund business tax breaks for homebuilders. But unions are opposed to this provision; they see it as a taxpayer funded giveaway to corporate homebuilders. Unions also see the irony in helping builders because the builders are one of the main culprits that caused the mortgage crisis by pushing subprime mortgages through their mortgage subsidiaries.
Meanwhile, supporters of homebuilders believe that the tax breaks will help them avoid bankruptcy and preserve thousands of jobs. The proposed changes would increase the FHA loan limits from 95 percent of an area's median home price to 110 percent. However, the FHA loan limit will not exceed $550,000 in high cost areas.
Mortgage refinancing to help borrowers is also part of the package. The relief package lets states tender $10 billion in tax-free municipal bonds, the revenues of which will be used to subsidize mortgage refinancing for subprime loan borrowers attempting to extricate themselves out of unaffordable loans.
Under the present law, tax-free bonds can only be used to subsidize mortgage loans for first-time homebuyers and those buying real estate in troubled areas. Also, the relief bill provides a $7,000 tax credit for homebuyers who purchase foreclosed homes or homes in default.
The proposal offers a new property tax deduction for millions of homeowners who use standard deductions on their tax return; the bill would permit them to take an additional second standard deduction for the property taxes paid. The latest property tax standard deduction will be $500 for single filers and $1,000 for joint filers. At present, homeowners who itemize their deductions are the only ones who can deduct their property taxes.
The proposal would allocate $4 billion in federal grants to state and local governments to purchase and revitalize foreclosed home. There should be more opportunities in the bill to help homebuyers and homeowners weather the current housing and mortgage market.