Tax Relief Bill to Hit President’s Desk

The omnibus appropriations bill, which is a $600 billion bipartisan spending bill that includes the extension of several tax relief provisions, has passed in the House of Representatives and the Senate and is expected to go before President Obama on Friday.
The bill includes a standalone proposal sponsored by U.S. Rep. Tom Reed (R-New York) known as the Mortgage Relief Assistance Act that extends a provision allowing homeowners to exclude forgiven mortgage debt (the remaining mortgage loan balance when a borrower’s principal residence is sold in a “short sale” to avoid foreclosure) from their gross income when filing tax returns. According to the National Association of Home Builders (NAHB), the forgiven mortgage debt exemption is expected to save homeowners about $3.3 billion for the tax year 2015.
The President is expected to sign off on the bill. He signed off on a similar bill last year on December 19 that retroactively extended 55 tax provisions, including the one that provides tax relief for forgiven mortgage debt.
“We want to make sure that families who are trying to stay on their feet aren’t kicked while they down,” Reed said. “Many times they have tried to do everything right, but still run up against tough financial times and the Federal government shouldn’t add insult to injury by levying a tax bill that could cost their homes.”
“We want to make sure that families who are trying to stay on their feet aren’t kicked while they down.”
Rep. Tom Reed (R-New York)
The exclusion of forgiven mortgage debt provision is an extension of the Mortgage Forgiveness Debt Relief Act of 2007, originally signed into law by President George W. Bush, which relieved distressed homeowners from having to pay taxes on forgiven mortgage debt for the three calendar years of 2007 through 2009. That tax exemption was extended three more years until the end of 2012 with the Emergency Economic Stabilization Act of 2008, and it was extended until the end of 2013 with the American Taxpayer Relief Act of 2012. Last December president Obama extended the tax exemption for forgiven mortgage debt until the end of 2014.
Another provision of the omnibus bill allows homeowners to consider mortgage insurance premiums paid as mortgage interest, thus allowing them to include the paid premiums as a tax deduction (same for FHA, RHA, and VA insurance premiums paid in addition to private mortgage insurance premiums). NAHB says this deduction is expected to save homeowners approximately $1.3 billion for the tax year 2015.
Both the exclusion of forgiven mortgage debt provision and the premium deduction for mortgage insurance will be extended through the end of 2016.


Here’s Why the Nation’s Housing Policy Must Grow Beyond Traditional Homeownership

coporateThe higher demand for single-family rental properties, primarily due to low vacancy rates, has put upward pressure on rents. In turn, rising rents have prevented many would-be first-time homebuyers from entering the housing market. The national homeownership rate fell to a 48-year low in the summer of 2015 to 63.6 percent.
All of these factors have prompted the question as to whether or not housing policy should continue a focus on traditional homeownership or concentrate its efforts on a broader definition of what constitutes “shelter.” According to CoreLogic’s SVP of Government Affairs, Faith Schwartz, in the company’s December 2015 MarketPulse released Friday, data points make a case that it’s time for the federal government to consider expanding its focus.
For one, according to the National Association of Realtors (NAR), first-time buyer share is at an all-time low of 32 percent. NAR Chief Economist Lawrence Yun said the “normal” first-time buyer share is around 40 percent. The increase in home sales in the last year has been driven by repeat buyers with dual incomes rather than first-time buyers; potential first-timers have been shut out of the market by high rents which prevent them from saving for a down payment. Student debt has also prevented would-be first-timers from buying homes.
While the low homeownership rate, low first-time homebuyer share, and rising rent costs may not necessarily constitute a crisis, it is at the very least a call for the federal government to act in order to do something to help those who are either not able to buy a home because they are paying too much for rent—or those who rent but may not be interested in owning but are struggling to make ends meet because the cost of rent is so high.
HUD Secretary Julián Castro addressed the topic of expanding the focus of housing policy this week at the Center of American Progress (CAP), which simultaneously released a report titled “An Opportunity Agenda for Renters” on Wednesday. CAP suggests a two-pronged approach to achieve to help housing policy achieve the goal of finding “decent and affordable housing in neighborhoods that offer safety, stability, and opportunity.” That approach includes promoting residential mobility and a deconcentration of poverty, while supporting reinvestment in neighborhoods that are racially segregated and/or economically impoverished.
Among the recommendations CAP proposes are more effectively preserving affordable rental housing and maintaining single-family rentals as an affordable source of housing. Since nearly 15 million families live in single-family homes today, which account for one-third of renters, CAP states that “If we are to make progress in ensuring that more households have an affordable place to live, it is critical not to ignore the single-family market.” CAP suggests making two- to four-unit structures a particular point of focus, since they are considered single-family properties and are a large source of affordable housing that is an “underappreciated segment of the housing market.”
CAP also suggests promoting affordable single-family rental housing through the federal government’s sales of non-performing single-family mortgage loans; the Federal Housing Administration and the GSEs have auctioned off nearly 150,000 deeply delinquent loans in the last three years. In March 2015, the GSEs’ conservator, the Federal Housing Finance Agency, announced an enhanced set of borrower requirements in order to improve outcomes for struggling borrowers and stabilize neighborhoods, since most of the loans auctioned are either in some stage of loss mitigation or are in foreclosure.
“While these agencies have taken some important steps to ensure that the sales benefit homeowners and stabilize neighborhoods, more needs to be done, especially to encourage loan purchasers to offer these properties as affordable rentals if they are not owner-occupied,” CAP stated in the report. “Specifically, the federal government should prioritize sales to nonprofit entities and place more requirements on loan buyers that push them to convert these units to affordable rentals when appropriate.”
“Ownership is often perceived as always superior but there are many reasons it may not be.”
CoreLogic Deputy Chief Economist Sam Khater
According to the Census Bureau, the median asking price for a vacant rental property was $802 in the third quarter; it was below $700 as recently as 2011. A recent report from the Wells Fargo Economics Group noted that the “millennial” generation is spending less on healthcare than their older counterparts, and an upswing in wages in the last year has helped to offset some of the cost of high rents.
“There’s no question that stagnant wage growth amidst faster paces of home prices and rents have created an affordability crunch in many markets,” said Adam DeSanctis, Economic Issues Media Manager with NAR. “Paying increasing rental costs and repaying student loan debt makes it difficult for young households to save for a down payment—especially in higher cost areas. What’s exacerbated the problem even further is the lack of new and existing supply coming on the market. This in turn is leading to faster price appreciation and declining affordability.”
As more multifamily units are built, rental costs are predicted to slow—but continued wage growth and an increase in single-family construction are needed to preserve affordability, particularly for the younger generation, when they are ready to buy, according to DeSanctis. According to NAR’s Housing Opportunities and Market Experience Survey released this week, 93 percent of renters under age 34 would like to buy a home at some point.
According to Schwartz, the data suggests that the federal government’s housing policy focus—which to this point has largely been on supporting Fannie Mae and Freddie Mac, the FHA, and mortgage tax deductions—has “become less effective in helping many younger Americans as they begin to form households.” Schwartz proposes a much stronger conversation around multifamily housing supply that is available in the same geographies as jobs in order to help the millions of renters.
“Ownership is often perceived as always superior but there are many reasons it may not be,” CoreLogic Chief Economist Sam Khater said. “Moreover, it implicitly exposes the fact that subsidies are not just tilted to ownership but are demand side subsidies not supply side where the issue is most dire.”