Appraisal Ace Blog

President Bush signed mortgage debt relief legislation into law Thursday, saying the measure will help struggling homeowners deal with "serious strains" in the housing market.

The Mortgage Forgiveness Debt Relief Act of 2007 will let homeowners avoid income tax on mortgage debt forgiven through refinancing. In the past, homeowners had to count forgiven debt as taxable income. The bill would create a three-year exception for debt forgiveness on home loans.

With foreclosure rates increasing as subprime adjustable-rate mortgages reset into more expensive monthly requirements and housing prices fall in many parts of the country, the White House is under pressure to help troubled homeowners. It is encouraging loan investors and servicers to speed up refinancings, an effort that could allow certain borrowers to have their interest rates frozen for up to five years.

To further address those strains in the months ahead, Bush said Congress should pass legislation permitting state and local governments to issue tax- exempt bonds for refinancing existing home loans, strengthen the independent regulator of Fannie Mae (FNM) and Freddie Mac (FRE), and finish a bill overhauling the Federal Housing Administration.

So, the first of several legislative efforts to strengthen the housing market has finally been enacted into law. While not all agree that these laws will help many in the short run, most agree that the taxpayer will foot the bill for efforts to bolster the housing market in the long run.