In the midst of the deal between Congress and President Obama to settle the fiscal cliff, policymakers averted sending the nation into an even greater economic recession on Tuesday. To the mortgage industry’s relief, Washington refrained from making dramatic impacts that would hinder housing’s slow, but steady recovery.
The bill that made it to President Obama’s desk kept two key elements of housing’s recovery intact, ones play in favor to distressed borrowers.
Clearing the House by a 257-167 vote, the bill raises taxes on families who earn more than $450,000. In the Senate, the bill passed by an 89-8 vote.
The bill coincides with the Mortgage Debt Forgiveness Relief Act and the Mortgage Interest Deduction, both of which were extended by policymakers for one year as a result of fiscal negotiations.
The bill enables borrowers to deduct the cost of their mortgage insurance premiums, in turn saving them from foreclosure. Under the Mortgage Debt Forgiveness Relief Act, borrowers can complete short sales and avoid paying income taxes on the amount of debt forgiven from mortgages.
A failure to extend the Mortgage Debt Forgiveness Relief Act and the Mortgage Interest Deduction would have shocked the housing market’s struggling progress toward a full recovery, as an increase in the number of foreclosures would in turn increase market supply.
The rest of the spending cuts under the fiscal cliff are reported to raise taxes by $600 billion over the next ten years, and they include changes to the alternative minimum tax, unemployment benefits, social security payroll, and Medicare reimbursement cuts, among others.
Written by Jason Oliva