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Now known as Public Law 110-343, the “emergency bailout bill” passed on October 3, 2008, is largely known for its price tag: $700 billion in relief. But that was only in one section, the Emergency Economic Stabilization Act (EESA) of 2008, of the more than 400 pages of legislation. Another portion of the bill contains the Energy Improvement and Extension Act of 2008, which includes green incentives for homeowners.
Two Mortgage Relief Options
As far as helping those struggling to make mortgage payments, the law had offered two main avenues that could provide mortgage relief.
One avenue is HUD’s Hope for Homeowners Program that began October 1, 2008 and is scheduled to end Sept. 30, 2011. The program allows eligible homeowners to gain mortgage assistance through FHASecure, an existing refinancing program offered by the Federal Housing Administration. Both lender and borrower must agree to participate. There are certain criteria that need to be met. For example, it is only available to those who are owner-occupants, the mortgage must have originated on or before January 1, 2008 and participants can’t own second homes.
The other avenue was the Troubled Asset Relief Program, or TARP, which was supposed to be a capital purchase program in which mortgage-backed securities and other troubled mortgage assets would be purchased by the government. However, on November 12, 2008, Treasury Secretary Henry Paulson, Jr. said that further assessment now suggests “that this is not the most effective way to use TARP funds.” Instead, Paulson said the government was considering three other strategies: how best to strengthen the capital base of our financial system, how best to support the asset-backed securitization market that is critical to consumer finance and how to increase foreclosure mitigation efforts.
For struggling homeowners, the government now will look at other methods of mitigating mortgage foreclosures now that it will not be purchasing “illiquid mortgage assets.” Paulson said it already has one model being used by the Federal Deposit Insurance Corporation (FDIC). Using mortgage modification, it has reduced payments for participating homeowners by an average of $380 month, or about 23 percent. He says the Hope Now Alliance also announced a streamlined industry-wide modification program that for the first time adopts an explicit affordability target similar to the FDIC model. “Potentially hundreds of thousands more struggling borrowers will be enabled to stay in their homes at an affordable monthly mortgage payment,” says Paulson.
Complications Remain
David Ledford, staff vice president of Housing Finance and Housing Policy with the , says the law makes other efforts, as well. It allows state housing finance agencies to temporarily use tax-exempt mortgage revenue bonds to provide refinance help for those struggling with their current mortgages. Previously, MRBs could only fund mortgages for first-time home buyers.
There are complications. “Most troubled mortgages have been sold in mortgage securities,” Ledford says, “where ownership interests are complex. Foreclosure mitigation efforts have also been hampered by the fact that many homes also have junior liens, and those holders usually have nothing to gain by supporting loan workouts. They often prefer to hold out rather than cooperate.”
Tax Relief on Removed Debt
One provision in the new law addresses taxes on any mortgage debt that is removed. If homeowners can convince their lender to forgive some of their mortgage debt before January 1, 2013, those homeowners will not owe federal income tax on that forgiven debt, according to the NAR.
Green Incentives
For homeowners who have been thinking about green improvements, another section of the law offers renewable energy incentives.
“Homeowners can go to to see the list of credits available. In addition to renewable energy tax credits, the new law also offers credits for things like energy-efficient windows and doors, insulation, etc., and we are encouraging our remodeler members to make sure potential customers know about these,” says Schmidt.
- 30 percent tax credit for residential solar installations, through 2016, and elimination of the $2,000 tax credit cap
- up to $4,000 for qualified small wind turbines through 2016
- up to $2,000 tax credit for residential geothermal heat pumps that meet Energy Star requirements and were installed after December 31, 2007
- Up to $300 consumer tax credit for energy-efficient biomass fuel stoves.
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Text by Maureen Blaney Flietner
© 2008 BobVila.com
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