Will The New Mortgage Laws Apply To Your Del Mar Homes?

If you were busy with holiday travels and shopping in late December, you might have missed the fact that President Bush signed into law new legislation designed to help homeowners in deep mortgage trouble. Now, it is important for you know how this could impact you and your Del Mar homes. Quite frankly, there was a plethora of information reported on this law, leaving many owners of Del Mar homes confused. Here are 5 of the most important things you should know.

1. Forgiven, Not Forgotten

The most significant change under the new law is tax relief for people who sell their home for less than the remaining balance on their mortgage. Under the old law, even if the lender agreed to "forgive" the difference between the home sale price and the mortgage balance, the IRS wasn't so lenient. Tax regulations required lenders to report the amount that was forgiven as gross income received by the seller, in effect handing sellers a tax bill on income they never actually received.

For example, if you sold your home for $200,000 but your remaining mortgage balance was $225,000, you would've faced a tax bill on the $25,000 difference that your lender forgave.

With the new legislation, that tax has been eliminated until Jan. 1, 2010. So at the very least, if you're forced to sell a home you can no longer afford, and your lender agrees to forgive any unpaid mortgage balance, you no longer have to worry about a hefty tax bill as well. (This tax break is retroactive to Jan. 1, 2007.)

2.       Other Good News

There was also a small bit of good news for homeowners with private mortgage insurance (PMI): Congress voted to extend the deductibility of PMI premiums until Jan. 1, 2010.

Only homeowners with adjusted gross incomes below $100,000 are eligible for a full deduction (it phases out between $100,000 and $110,000), and only mortgages for primary residences originated after 2006 are eligible. A PMI trade association estimates this tax break will result in an average $350 annual savings for homeowners eligible for the deduction.

The final bit of housing-related legislation provides tax relief for surviving spouses. If a surviving spouse opts to sell a primary residence within two years of the death of the other spouse, the surviving spouse is eligible for a $500,000 capital gains exclusion, rather than the old $250,000 exclusion that applies to individuals.

3.       Hope for Some

In addition to these new laws, Washington is also busy pushing a voluntary relief program for the mortgage-stressed. The HOPE NOW alliance, which features Treasury secretary Henry Paulson as a lead flag bearer, announced a plan in early December that should be up and running soon. The plan allows some subprime mortgage holders to refinance, or lets them lock in their current interest rate for five more years -- a deal that has been dubbed a "tease freeze."

I know the issue of mortgage assistance isn't necessarily popular with many of you. A December 2007 CNN poll reported that 51 percent of respondents were in favor of "special treatment" for homeowners facing default and foreclosure, while 46 percent were against any special treatment. Those of you facing a big mortgage reset are obviously in the pro-HOPE NOW camp.

But before you breathe a sigh of relief, you need to understand the severe limitations of the plan. First, it's voluntary, meaning lenders are encouraged to offer the relief programs but not required. In fact, the plan comes not straight from the White House or Treasury Department, but from the American Securitization Forum, a consortium of money managers (read: hedge funds and Wall Street firms sitting with the distressed debt), as well as all sorts of mortgage lenders and servicers.

You don't need to be a rocket scientist to realize that the group's primary motivation is to help investors holding the mortgage debt, not the actual homeowners with the exploding mortgages. Moreover, the eligibility rules will make it tough for many people to quality for help. In fact, the Center for Responsible Lending estimates that the president's plan being pushed by Secretary Paulson could help less than 10 percent of subprime borrowers.

4.       Five-Year-Freeze Facts

The full rundown of the HOPE NOW plan is available here, but here are the major points that determine if you're eligible for a five-year freeze:

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