Now in Legal Rebels:
Posted Aug 31, 2007 05:58 pm CDT
Updated: Several federal agencies will make major changes in housing-related rules, offering significant help to homeowners struggling with subprime mortgages, President Bush has promised. News reports say his announcement today–and adoption of programs that Democrats say they suggested–signals an expected Congressional reform of Federal Housing Administration programs and perhaps other new legislation as well.
In particular, for an unspecified temporary period, at least some homeowners who sell at a loss to the mortgage lender or persuade the lender to reduce the principal balance of the mortgage won’t be required to pay tax on the forgiven debt, reports the Los Angeles Times.
However, a Reuters report indicates that the tax law may have to be revised before this change could be made.
Meanwhile, the Federal Housing Administration will now guarantee the mortgages of some homeowners who are more than 90 days delinquent, making it easier for low- and moderate-income borrowers to get out of subprime mortgages by refinancing into fixed-rate loans, according to the Times.
A number of other changes are also planned in FHA loan programs and lending practices according to the Associated Press and Bloomberg. A “factbox” briefly summarizing some key provisions is provided by Reuters.
So-called subprime mortgages refer to the borderline creditworthiness of borrowers and tend to be more expensive than traditional home loans. Their features can include high interest rates; adjustable interest rates; artificially low initial interest rates; and payment options that allow the borrower to pay less than the amount of monthly interest on the loan.
Exactly who will qualify for the new programs isn’t clear, but, writes the Los Angeles Times, Bush “went out of his way to say that he was not seeking to help speculators who took on more debt tha[n] they could handle in a gamble that home values would keep soaring higher. Instead, he said, his plan is aimed at homeowners who were misled by mortgage brokers and misunderstood the terms of their loans.”
The Wall Street Journal provides a transcript of the president’s remarks today.
(Updated at 3:18 p.m., central time.)