Pro-Borrower Bill Passes House, Moves Onto Sentate

by Peter G. Miller
October 9th, 2007

Progress is being made in Washington regarding HR 3648, a bill that has two central provisions of interest and mortgage borrowers and has now passed the House of Representatives.

The bill deals with an oddity in the tax code, Section 108. Under this provision, if someone does not fully repay their mortgage the money which is not repaid can be regarded as “imputed” income — money which is taxable. While this section actually makes some sense in terms of financial logic, in practice what really happens is that homeowners who are unable to repay their mortgage come to an agreement with their lender so that the lender takes something less than the full amount of the debt. The amount unpaid can then be regarded as taxable income. The problem here is that the borrower is broke and has no money to pay a tax bill. HR 3648, introduced by Rep. Charles Rangel (D-NY), would essentially repeal Section 108.

Also in the bill is a provision of great importance to FHA borrowers. The law which allows borrowers to write off mortgage insurance for loans taken out during 2007 would be extended until December 31, 2014. According to the Mortgage Insurance Companies of America, a typical borrower would save $350 a year.

What will happen when the Senate considers this legislation? The betting here is that it will fly right through the legislative process. The tax on imputed income doesn’t work and no one wants to make homeownership more expensive at a time when so many people are facing foreclosure.

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This entry was posted on Tuesday, October 9th, 2007 at 4:34 pm and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “Pro-Borrower Bill Passes House, Moves Onto Sentate”

  1. JadeEJF Says:

    Yes, the tax on this phantom income is crappy, but what about the change to the capital gains tax exemption for investors that’s also included in this bill… I’m curious what other people think…

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