WASHINGTON – In a letter to the leaders of the Senate Banking and Finance Committees, U.S. Senator Chris Murphy (D-Conn.) urged his colleagues to take action to help reduce the skyrocketing numbers of underwater mortgages in America. In his letter, Murphy highlighted a recent study conducted at the University of California at Berkeley and reported by the Hartford Courant that placed Hartford, Connecticut at the top of a list of 100 U.S. cities with the highest percentage of underwater home mortgages.
Murphy urged the Senate Banking Committee to explore implementing robust principal reduction programs as it works towards restructuring the secondary housing market. He urged the Senate Finance Committee to ensure that the Mortgage Forgiveness Debt Relief Act remains a component of any tax extenders package that is ultimately signed into law.
“This problem is not limited to Hartford, but is emblematic of the struggles that families in cities and towns across Connecticut face,” Murphy wrote. “At the end of 2013, 42 percent of Bridgeport homeowners owned properties that were worth less than what was owed on their mortgages, and in New Haven that number stood at 29 percent. Default rates are particularly high among these borrowers, and with such high rates of underwater mortgages in Connecticut combined with a persistently slow U.S. economic recovery, these families may be facing financial hardship for years to come.”
Full text of Senator Murphy’s letter:
The Honorable Tim Johnson The Honorable Mike Crapo
Chairman Ranking Member
Senate Banking Committee Senate Banking Committee
The Honorable Ron Wyden The Honorable Orrin Hatch
Chairman Ranking Member
Senate Finance Committee Senate Finance Committee
Dear Chairman Johnson, Ranking Member Crapo, Chairman Wyden, and Ranking Member Hatch,
I write to you, as leaders of two Senate committees with a significant role in housing policy, to bring to your attention the growing number of underwater mortgages across my state and the increasing harm of this phenomenon to our economy. While the overall health of the economy and the housing market has improved significantly since the peak of the recession, the economic prospects for thousands of Connecticut families and homeowners are still bleak. A recent Hartford Courant article noted that Hartford has the highest percentage of homes with negative equity of any other city in the country—a staggering 56 percent of homes were underwater at the end of 2013. This problem is not limited to Hartford, but is emblematic of the struggles that families in cities and towns across Connecticut face. At the end of 2013, 42 percent of Bridgeport homeowners owned properties that were worth less than what was owed on their mortgages, and in New Haven that number stood at 29 percent. Default rates are particularly high among these borrowers, and with such high rates of underwater mortgages in Connecticut combined with a persistently slow U.S. economic recovery, these families may be facing financial hardship for years to come.
I do not believe Congress can ignore this crisis, in Connecticut and across the nation. There are tools at Congress’s disposal that can be employed to reverse this trend and move these families out of the risk of foreclosure and further financial ruin. To that end, I urge you to take two steps to alleviate the growing crisis of underwater mortgages. First, the Senate Banking Committee should explore implementing robust principal reduction programs as you work towards restructuring the secondary housing market. Second, the Senate Finance Committee should ensure that the Mortgage Forgiveness Debt Relief Act remains a component of any tax extenders package that is ultimately signed into law. Pursuing these two goals will boost economic growth and provide a lifeline to millions of families across my state and the country.
I commend the tireless work the Senate Banking Committee is doing to create a fiscally responsible structure of the secondary mortgage market. As the Committee continues to consider legislation regarding the future of this market, it is imperative to consider significant principal reduction programs for mortgages backed by the federal government. As you work to responsibly reform the secondary market, I would urge the Committee to affirm the ability of any federal supervisor to allow targeted principal write-downs for loans within their jurisdiction. This would be the most effective and cost-efficient way to keep families in their homes. Doing so would result in savings to both struggling families and to the government alike, as foreclosure and delinquency rates would be dramatically reduced. This in turn would boost the overall economic growth of municipalities across the country, allowing cities like Hartford, Bridgeport, and New Haven to rebound and thrive.
I also applaud the Senate Finance Committee for their work in ensuring that the tax code incentivizes job creation while providing much needed tax relief for struggling families. I especially applaud the Committee for including the Mortgage Debt Tax Relief Act in the tax extenders package that is currently being considered by the full Senate. As many Connecticut families have unfortunately recently experienced, home foreclosures, defaults, or mortgage modifications have devastating — and often unanticipated — tax consequences. These transactions may result in the cancellation of debt, which under current law is treated as income, subject to tax under IRS code. The owners of underwater mortgages do not deserve to endure additional pain by being taxed on this phantom income. Adding insult to injury would do nothing to help get working families back on their feet, and I urge the Committee to work to ensure that this provision is included in whatever tax extenders package is ultimately signed into law.
I thank you for your tremendous work and leadership on these issues, and respectfully ask for your consideration of my request.
Christopher S. Murphy
United States Senator