Donnelly supports relief for homeowners facing foreclosure

From Staff Reports

October 05, 2007 09:25 pm

— WASHINGTON — U.S. Rep. Joe Donnelly, D-Ind., joined the House this week in approving HR 3468, the Mortgage Forgiveness Debt Relief Act of 2007.
Under current law, the debt forgiven after mortgage renegotiation or foreclosure is considered income for tax purposes, resulting in a tax liability for individuals and families. The bill approved by the House would provide tax relief by permanently excluding from taxation any mortgage debt forgiven on or after Jan. 1, 2007, under certain circumstances.
Indiana’s rate of home loans in foreclosure, 3 percent, is well above the national average of 1.28 percent and 1 in every 219 Hoosier families face foreclosure. Subprime loans account for nearly half of Indiana’s foreclosures.
“As mortgage rates reset to levels that families are unable to afford, the mortgage crisis continues to grow,” Donnelly said. “By passing this legislation, we are taking an important step in preventing homeowners, already faced with the devastation of losing their home, from also incurring an additional tax burden that they would not be able to pay.”
To prevent any abuse, the bill caps at $2 million the maximum amount of forgiven debt that would be eligible for tax relief, and it limits tax relief to situations where the debt is forgiven because of a decrease in home value or because of financial hardship on the borrower.
Now that the legislation has been approved by the House, the Senate must pass its own version. If approved by both bodies, the bill will be sent to the president for his signature.