Like carnival barkers at the county fair, mortgage brokers and realtors are urging underwater homeowners to hurry, hurry, hurry on their short-sale plans.
The reason for the rush: the Mortgage Forgiveness Debt Relief Act is set to expire at the end of the year. This temporary tax code revision has exempted millions of homeowners from taxes on canceled mortgage debt through foreclosures, short sales or loan restructuring.
With short sales often turning into a protracted process, real estate advisers have been urging homeowners to get started-immediately-on marketing their homes, in case Congress decides against approving an extension past December.
To some, this seems like hype from an industry looking to light any fuse on housing sales. The 2007 exemption already has been extended once and is not considered costly. According to Congressional estimates, tax receipts from the forgiven debt would total only $1.3 billion from 2008 to 2017.
The tax exemption also has attracted bipartisan support. "It's been extended before, and my assumption is they will" extend it again, Brent White, a professor at the University of Arizona's Rogers School of Law, says of the tax exemption. "But who knows with this Congress."
Extending relief to stressed homeowners does seem a no-brainer with millions of mortgages still underwater. But at the start of the 2012 Congressional calendar year, there appeared to be little discussion of the matter in policy circles, and lobbying plans by trade groups like the National Association of Realtors and the Mortgage Bankers Association were only in their nascent stages.
Even if the issue had generated more buzz by now, some observers question whether a House agenda under Republican control would include a measure top leaders believe might encourage irresponsible homeowners to walk away from their obligations scot-free. "There's a camp that blames some of the default activity on ... having the Mortgage Forgiveness Debt Relief Act in play," says Anthony Sanders, a real estate professor at the Mercatus Center at George Mason University.
Just how large that camp is remains unclear. Only 27 Republicans voted against the original 2007 bill, which was written by Rep. Charles Rangel, D-N.Y., and handily passed the House before sweeping through the Senate with unanimous consent. But that was before the Tea Party.
Moreover, a look at the 2007 roll call shows that two of the "no" votes came from GOP members who are now heavyweights on the Ways and Means Committee-through which the original bill traversed.
Aides to these two legislators, Rep. David Camp of Michigan, the Ways and Means Committee chairman, and Rep. Kevin Brady of Texas, the GOP deputy whip, did not respond to questions about whether they would support an extension, or would at least consider one. Both men are on record having signed an opposition statement attached to the original legislation highlighting concerns that the temporary measure could morph into a permanent entitlement, creating "an environment where the American tax system is complicit in promoting 'risk-free' mortgages."
