The collapse of the American housing market that began in late 2006 has brought our economy to its knees and left Americans from all walks of life without a home or struggling to keep a roof over their head.
A culture of deregulation and irresponsible consumer lending that was widespread during the George W. Bush administration caused an unprecedented housing crisis which has affected every town across America -- big and small, Republicans and Democrats alike. Consequently American families everywhere are still suffering. We must work together in Congress to rebuild our housing market and help people get back on their feet.
Over the last five years American homes have lost seven trillion dollars in value. These declining prices have caused many families facing foreclosure to "short sell" their homes for less than they paid for them, and sometimes for less than the outstanding mortgage debt. An estimated four million American families, at no fault of their own, have lost their homes to foreclosure since 2007.
The number of short sales and foreclosures skyrocketed since the housing market collapsed. At the time, those losing their homes were unaware that any loans forgiven after a "short sell" or foreclosure would be considered taxable income. That is why I authored the Mortgage Forgiveness Debt Relief Act, which was signed into law in 2007. The law relieves that unfair tax burden by removing the "phantom" income in cases where the lender forgives part of the mortgage on the sale or disposition of one's home. While the law cannot repair the borrowers' credit or punish those who misled them into taking out inappropriate loans, it addresses a fundamental unfairness in the lives of those who find themselves in these dire circumstances.
Congress must not let the Mortgage Forgiveness Debt Relief Act expire at the end of the year. Today 12 million Americans are on the verge of losing their homes because they owe more money than their home is worth. Republican or Democrat, none of us in Congress wants to see our constituents who have just lost their homes be forced to pay unforeseen taxes when money is already tight. We should put our political differences aside to do what is right for the American people.
In effort to provide some immediate relief, more than 110 of my Democratic Colleagues and I sent a letter last week to Edward DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA), urging him to allow loan forgiveness for struggling homeowners. The agency, which oversees Fannie Mae and Freddie Mac, owns or guarantees more than half of all mortgages in the United States. The road to economic recovery calls for shared responsibility and sacrifice. Loan forgiveness will keep American families in their homes and save taxpayers money by preventing foreclosures.
Moreover, we must also provide access to affordable housing in urban communities with mostly high-rise residential buildings such as those in my Manhattan Congressional District. Across the country there are only 62 affordable housing units available per 100 low-income tenants. Passage of my Public Housing Tenants Respect bill would remove the barriers that limit access to public housing for our most vulnerable citizens. In these challenging economic times, we must protect the unemployed and low-income families as they strive to rejoin the workforce and gain their financial foothold.
The sanctity of our homes is at the heart of the American Dream. Whether you own a house, rent an apartment or live in public housing, adequate housing is a fundamental universal human right. Every American deserves a roof over his head.
This post originally appeared on GlobalPolicy.TV and was republished with permission from the author.
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David M. Abromowitz: Take a Load Off, Fannie: Principal Reduction Is Overdue
Judge Lippman the Chief Judge of the State of New York is on the correct side of the seemingly relentless fight between we 99 percent and the banks.
"The sanctity of our homes is at the heart of the American Dream" will become a reality, at least in Manhattan.
In our view, the heads of Citibank, Wells Fargo and especially Bank of America should be paying $2,000.00/mo. to sleep in federal penitentiaries for the rest of their miserable little lives. It is crystal clear to me that until we 99 percent stand up and unify behind what is right nothing will change.
This Presidential election season (we hope and pray) will witness a sea change when we WILL occupy the hearts and minds of all good folks struggling to live while playing by the rules.
Oh wait, I guess only charlie rangel can do that...
How in the world is this clown still in congress? Republican or Democrat, this guy should be booted out. I don't care who you are, I don't care who you know, when you get caught playing the games this guy did you should never be permitted to hold public office agian.
How dare a guy who cheats on his taxes and flimflams tax subsidies for multiple apartments in NYC say anything about how taxpayer money is spent?
The only reason this guy is still in Congress is because the Dems controlled Congress when his ethics charges went before the house.
Corrupt old windbags should know when it is time to shut up and fade away. Should, anyway.
I say, "your banking cronies," because I know that banks have become "generous contributors" "to the re-election campaigns of" Members of Congress, and the probabilities are quite favorable that you're just another one of the "recipients of their largess." But I digress...
When a home declines precipitously in value, two things happen: (1) The debtor has debts greatly exceeding his assets; and (2) The creditor no longer has a collateralized, therefore secured, loan, therefore asset.
But .. waitaminit .. that "too big to fail" (sic) institution has not only sold that loan off as a derivative security, they might have sold the SAME loan a hundred times. (Don't think "securities fraud," sir. Here, let me help you, here's another contribution...)
OF COURSE it is (a) bankruptcy and (b) securities fraud.
Any fool homeowner would tally up, say he's $300K in the hole strictly due to that mortgage, and file Chapter 7. "Too big to fail" doesn't want that skeleton to come out. Neither, apparently, does Congress. And so a titanic fraud continues. Wonder why?
The MFDRA was a fair thing to do. Unfortunately, there are some cracks in that legislation.
The exemption from debt forgiveness "income" only applies if the home in question was the borrower's primary residence.
That's fine when the borrower is a flipper or speculator who was way over-leveraged in real estate and got caught when the game blew up. They gambled, and they lost.
But there are many who bought vacant property upon which to build their home, only to lose their jobs and then be forced into a foreclosure or short sale. For these people, that property was the only property they owned. But because they couldn't build the house after their income went away, they couldn't make that house their primary residence.
As the MFDRA is currently written, had these folks just bought an existing home and moved in, they would have ZERO tax liability for any debt forgiveness which happened when they later lost the home.
But because they bought a vacant lot instead of an existing house, they're stuck with Cancellation of Debt "income" and the taxes that go with it.
Economically, they're in the same boat as a laid-off former home owner, but they don't get the MFDRA lifeline when that boat starts to sink. Instead, they get a torpedo from the IRS.
Please address this soon. In addition, I recommend including a retro-active provision to assist the many who have already received their torpedo.
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This is a false statement. You should know better.
It has helped a lot of people avoid unfair and unnecessary taxes on "income" they never saw, but only after they've lost their homes to short sale or foreclosure.
Still, something a little more proactive would have been dearly appreciated by guys like you (and me). Anything that happens this late in the game will for many be like having the team of surgeons rush in and begin emergency surgery on a patient that died 6 hours ago.
Oh, he wrote it himself? Never mind.
A mortage grants an interest in the pledged property to the lender. Whether the interest is whole or fractional, it is an interest nonetheless.
The lender always includes a clause making the loan immediately due up the sale of the property. If the borrower sells the property, the lender doesn't care where the payoff comes from, as long as it is made. All mortage holders - first, second, zillionth - must agree to a short sale before it can be closed. Many do, with the provision that if the borrower ever has enough cash in the future, they must be paid from that cash. In practical terms, this means the short seller can't buy another home until the first home is "paid off".
Some lenders don't bother, since it would take an army of investigators to track all those underwater borrowers. They take what they can get and hold onto a worthless judgment against the lender, waiting for him/her to win the lottery.
I had a turn of events and I needed to sell my home. I could not reinvest my profit within the two year time period so I had to pay capital gains tax. It was a time when I had very little money but I paid. Those were and still are the tax rules. How can you start changing tax rules to fit certain conditions? If you go down that road then I want my money back because I was facing a great hardship at the time.
The only people I would possibly considered would be the ones who never borrowed against their homes.
The root problem here, I think, is that laws which were designed to save banks from insolvency have been turned into "the guv'mint will cover all our bad bets, so let's party" by some incredibly(!) stupid so-called bankers with great political connections.