Foreclosure assistance advances

October 05, 2007|Associated Press

WASHINGTON - Financial relief for homeowners facing foreclosure or in bankruptcy advanced yesterday as the House approved legislation to help financially strapped homeowners.

The bill, passed 386 to 27, would give a tax break to homeowners who have mortgage debt forgiven as part of a foreclosure or a reworking of a loan. The value of that forgiveness, which is now taxable as income, would become tax-exempt.

While the measure is anticipated to reduce the taxes of some strapped homeowners by $650 million, it also looks to help offset that by limiting a tax break available on the sale of second homes.

Another measure, narrowly approved by a House Judiciary subcommittee and opposed by Republicans on the panel has been sent to the full Judiciary Committee. It would revise the bankruptcy code to help homeowners facing default and foreclosure, biting into already hard-hit profits at mortgage lenders.

That bill would allow judges to order mortgage lenders to ease terms for homeowners in bankruptcy proceedings. Currently, mortgage lenders can foreclose against a homeowner in default 90 days after the filing of bankruptcy.

Legislation similar to both bills is pending in the Senate.

Mortgage lenders would be "terrified" of getting wrapped up in bankruptcy proceedings, said Brian Gardner, a research analyst with investment firm Keefe, Bruyette & Woods.

The House vote was the latest congressional reaction to a mortgage crisis touched off this spring by a blowup in subprime home loans for risky borrowers.