President signs Landmark Housing Law.

• Author: Berger, Barrie Tabin
• Position: Mortgage Forgiveness Debt Relief Act

Since early 2007, communities across the nation have been struggling with a flailing economy and perhaps the most significant downturn in the housing market since the Great Depression. In fact, the National Association of Homebuilders reports that by the end of 2008, home prices will have dropped 15 percent from their peak in 2006. (1) The problem of declining home prices coupled with subprime mortgage lending--providing loans to higher-risk borrowers at interest rates that are higher than those assigned to lower-risk borrowers--is the major factor in the increasing rate of foreclosures around the country. The Center for Responsible Lending predicts that 2.4 million families that took on subprime home loans between 1998 and 2006 have already lost their homes to foreclosure or will do so. (2) As families lose their homes because they are unable to make their mortgage payments, local governments continue to grapple with the many resulting problems. The National League of Cities estimates that cities and towns might lose as much as $6.6 billion in tax revenues from both foreclosures and declining home values--a tremendous loss, considering that many local governments rely heavily on property taxes to provide essential services such as fire and police, sanitation, and education. Other problems facing local governments include costs associated with the policing and maintenance of abandoned housing to protect against vandalism, arson and drug-trafficking; reductions in new building activity, which translates into lost building permit and inspection fees; and higher issuance costs for municipal bonds, which make it more difficult for local governments to raise the funds needed for public infrastructure and other projects.

LEGISLATIVE RELIEF

In response to the crisis facing both homeowners and local communities, Congress has spent the better part of the past 18 months considering legislative initiatives that would provide much-needed relief to homeowners and local communities, and bolster the nation's faltering economy.

In the last days of 2007, Congress approved and President Bush signed the Mortgage Forgiveness Debt Relief Act (Public Law 110-142), which creates a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness they receive.

Throughout 2008, and perhaps buoyed by the upcoming elections, Congress pursued avenues of assisting homeowners and communities. On July 30, 2008, after several months of...