Foreclosure Help: Finally A Way Out For Financially Strapped Homeowners

The House has finally approved legislation to help financially strapped homeowners who are facing foreclosure or bankruptcy. Those homeowners who have a mortgage debt as part of a foreclosure would be given a tax break by the bill, passed 386 to 27, or a reworking of a loan will be given to them. The value of that pardon, which as it stands now is taxable as income, would be exempt. This tax break comes as a huge relief for homeowners who were already heavily burdened by the possibility of foreclosure or higher interest rates, but didn’t want to complete the process due to the additional tax liability they would have to incur as a result.

The measure that is taken expects to reduce the taxes of some strapped homeowners by $650 million. By limiting a tax break available on the sale of second homes it also looks to help offset their liability. This change in policy follows closely after President Bush had said that he would help those people who have been suffering due to foreclosures.

There has been another measure which has narrowly been sanctioned by a House Judiciary subcommittee. Although there has been opposition on behalf of the Republicans on the panel, it has been sent to the full Judiciary Committee. This would finally revise the bankruptcy code which would help homeowners who are facing default and foreclosure and it would bite into the already hard-hit profits of mortgage lenders. However, it is unlikely that this can be avoided, as almost any formula or policy adhered to favor the homeowner would invariably hit the mortgage lender in one way or another.

That bill that is in question would appropriate judges who can order mortgage lenders to ease terms for homeowners in bankruptcy transactions. Currently, the situation is that in case of filing of bankruptcy against a homeowner in default for 90 days or more, the mortgage lenders can then foreclose against a homeowner. A similar legislation to both bills is pending in the Senate.

As Brian Gardner, a research analyst with investment firm Keefe, Bruyette & Woods, says that mortgage lenders would be “terrified” of getting absorbed in the proceedings of bankruptcy. The latest congressional reaction to a mortgage crisis touched off this spring by a blowup in sub-prime home loans for risky borrowers was the House vote.

In the picture above, we can see Nancy Pelosi, who is the Speaker of the House discussing a bill with Representative Barney Frank which will provide a tax break to those homeowners facing bankruptcy or foreclosure.

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