When your home is losing value and your family is under financial stress, the last thing you need is… higher taxes. So I’m working… to pass a bill that will protect homeowners from having to pay taxes on cancelled mortgage debt."

President George W. Bush, September 1, 2007

The President took steps to make good on that promise yesterday by signing H.R. 3648, the Mortgage Forgiveness Debt Relief Act of 2007. The act helps Americans avoid foreclosure by protecting families from higher taxes when they refinance their home mortgages.

Under current leislation, if the value of a property declines and the lender forgives a portion of the mortgage, the forgiven portion is taxable. This can lead to higher taxes, and for many families already feeling the financial strain of a subprime mortgage, this tax makes a difficult situation even worse.

The bill crates a three-year window for homeowners to refinance their mortgage without having to worry about paying taxes on any mortgage debt that is forgiven. This allows families to seek lower mortgage payments through refinancing without having to worry about increased taxes.

This is an excellent first step to address the challenges in the housing market, and now Congress has to do its part by doing the following:

1. Congress must enact responsible legislation to modernize the Federal Housing Administration (FHA). This bill will give the FHA the flexibility to help hundreds of thousands of families qualify for prime-rate financing.
2. Congress must pass legislation allowing State and local governments to help troubled borrowers by issuing tax-exempt bonds for refinancing existing home loans.
3. Congress must pass legislation to reform Government Sponsored Entities (GSEs) like Freddie Mac and Fannie Mae.

The Administration has moved forward with the actions announced in August by the President to assist homeowners:

1. The Administration has launched a new initiative called FHASecure which expands the FHA’s ability to offer refinancing by giving it the flexibility to work with homeowners who have good credit histories but cannot afford their current payment programs.
2. Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson have assembled the private-sector HOPE NOW alliance to help subprime borrowers who can afford the current, starter rate on a subprime loan but would not be able to make the higher payments once the interest rate increases.

This is an important first step in addressing the subprime mortgage crisis, and we hope that the many families out there feeling the pinch this Christmas season because of their mortgage woes can take comfort in knowing that things are turning the corner.