Government Relief Measures For Foreclosure Victims

October 8th, 2007

The foreclosure situation has spun out of control. Many are facing bankruptcy. The government is sitting up. The House gave the green signal to a law that will help the financially cornered house owners. The bill was overwhelmingly passed by a vote of 386-27. It will provide for tax relief to house owners who have mortgage debts forgiven. Unfortunately till date the amount of debt forgiven was considered as taxable income. Now it would be exempted.

It will reduce the taxes by about $650 million. But disallowing tax breaks on the sale of second houses is making up this loss to the treasury.

A House Judiciary Subcommittee has narrowly approved another step. The Republicans who were in the panel opposed it. The bankruptcy code will be now revised to assist house owners harassed by default and foreclosure. The mortgage lenders already suffering by the credit crunch released by the foreclosure waves will be further adversely affected. The bill will give more teeth to the judiciary to enforce lenders to ease bankruptcy proceedings. Currently lenders can close in on the borrower with foreclosure if the latter has defaulted 90 days in making payments after filing bankruptcy. Mortgage lenders will now be ‘terrified’ in getting involved in bankruptcies is the opinion of renowned analyst, Brian Gardner.

Legislation akin to both the bills is pending in the USA Senate. Another step taken by the House last month was to pass a law to back mortgages funded by Federal Housing Administration. The latter now insures about 3.7 million loans in the case of default.

So far the House vote has been the latest steps taken by the Congress to the foreclosure crisis that came into focus in spring this year. Foreclosures threw a pall of gloom over the entire economy. About 2 to 25 million foreclosures listed in the sub-prime category worth about $600 billion is ready to be reset towards the end of this year and 2008. This will kick off another devastating wave of foreclosures. With payment rates doubling many will find it impossible to continue. A falling housing market will make things more difficult as regard equity and sale. The foreclosures in USA have reached record heights and continue to climb without any signs of peaking. Lenders are equally affected by a cash crunch and are being forced to down shutters. Investors are taking a beating.