Sorohan, Mike--Apr. 4, 2014
The Senate Finance Committee yesterday approved a bill that would extend legislation helping underwater borrowers selling their homes under short sales, a provision strongly supported by the Mortgage Bankers Association.
The committee, by a voice vote, moved forward the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act http://www.finance.senate.gov/imo/media/doc/Chairman's%20Modification%20EXPIRE%20Act.pdf. The markup occurred following a general agreement reached by the committee’s new chairman, Sen .Ron Wyden, D-Ore., and the committee’s ranking member, Sen. Orrin Hatch, R-Nev., on a number of tax relief provisions, including several of interest to the real estate finance industry.
Those provisions include extension by two years of the Mortgage Forgiveness Debt Relief Act; a provision extending the tax deduction for mortgage insurance premiums; and a provision that maintains the fixed interest rate for affordable housing projects financed with Low Income Housing Tax Credits.
The Mortgage Forgiveness Debt Relief Act extension would prevent underwater homeowners from being taxed if their lender reduces principal or they sell their home through a short sale. Wyden, who became chairman following the departure of former Sen. Max Baucus, D-Mont., who recently became U.S. ambassador to China, said without this provision, homeowners whose properties have negative equity (i.e. “underwater”) would be hit with “thousands of dollars in tax liabilities they don’t need and cannot afford.”
“We still have a lot of heavy lifting to do,” Wyden said. “I hope we can get this accomplished.”
Sen. Debbie Stabenow, D-Mich., said the provision was “critical to thousands of homeowners who want to stay in their homes.”
MBA, in an Apr. 3 letter to Wyden and Hatch, urged the committee to approve the bill. “The provisions in The EXPIRE Act will provided much needed certainty to the residential and commercial/multifamily real estate markets at this critical point in our nation’s economic recovery,” said MBA Senior Vice President of Legislative and Political Affairs Bill Killmer.
MBA cautioned should Congress fail to act, struggling homeowners who accept short sales and many loan modification offers could be faced with a substantial tax assessment. “The prior law, if reinstated, makes many loss mitigation efforts more successful,” Killmer said.
The EXPIRE Act also includes a provision that would extend the tax deduction for mortgage insurance premiums paid by homeowners. MBA noted for a $200,000 home, a homeowner would be able to deduct between $600 and $1,000 from their taxes. “Reinstituting this deduction will greatly benefit the large number of homeowners who cannot afford a 20 percent or greater down payment and who use mortgage insurance in order to purchase a home,” MBA said.
MBA also expressed support for a provision that maintains the fixed interest rate for affordable housing projects financed with Low Income Housing Tax Credits. “If Congress does not act, the tax credit’s fixed rate for projects will continue at a variable rate,” MBA said. The variable rate will likely make it more difficult for projects to secure necessary financing and could cause a slowdown in production of future affordable housing projects.”
The legislation now moves to the full Senate for debate/vote on a date yet unscheduled.