THE Dow soared 200 points in a Christmas rush on Friday that belied emerging details that US banking, mortgage companies and credit rating faced collapse while the nation’s mortgage insurance industry plunged into chaos.
Nearly 180,000 US local councils were placed on credit watch, with the credit agency Fitch releasing another $US5.3 billion in credit downgrades involving 27 mortgage companies. The news emerged on Friday night, when the nation’s newspapers, even if they were following the story, would miss it.
That one company could downgrade 27 major financial institutions in one stroke is stunning, but it follows a swathe of credit downgrades that swept the US on Thursday and Friday.
There has been a major falling out between mortgage insurers, credit rating companies, banks and mortgage institutions, which believed their loans were insured, only to be stunned to find themselves booted into the mire that is American banking.
Chinese, Singaporean and Arab sovereign investment funds seem to offer the only salvation for the US banking system.
The depth of the housing crisis was underscored by the head of one of America’s largest banks, Bank of America, the straight-speaking Kenneth Lewis, who warned of a completely new attitude by Americans to their homes amid fears that as many as 20 million householders may “walk” from them, further deepening the crisis.
| Yesterday, President Bush signed H.R. 3648, The Mortgage Forgiveness Act of 2007, into law, sparing homeowners the tax burden associated with canceled mortgage debt.
Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was considered taxable income. The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009. The bill also extends the tax deduction for mortgage insurance premiums through 2014. “This is going to make a happy holiday for many homeowners,” President Bush said yesterday before signing the bill in to law. During the press conference he added the following: “When you’re worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it’s a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans – and it will allow American families to secure lower mortgage payments without facing higher taxes.” “There’s more work to be done,” Bush added, saying that Congress needs to pass legislation to strengthen Freddie Mac and Fannie Mae, to modernize FHA, and to allow the government to issue tax-exempt bonds for refinancing existing home loans. |
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