California still is working through "underwater" mortgages and trying to jump-start housing construction.
The state's aim should be twofold: get people out of homes they can't afford and into homes they can afford, and reverse the massive shrinkage in the construction industry to produce affordable housing.
Two bills in the Legislature would go a long way to accomplish this -- Senate Bill 30, on tax relief for struggling homeowners, and Senate Bill 391, creating a new housing trust fund. Both deserve passage.
Under the national mortgage settlement last year, the largest lenders agreed to do more "loan modifications" to keep some people in their homes and "short sales" to sell homes for less than the balance due on the mortgage. Both involve some measure of forgiveness from the original loan balance. Our state Legislature, meanwhile, applied the new rules to all lenders in the state to get the housing market moving.
But there's a glitch. If a lender reduces the loan principal to avoid foreclosure, then that would ordinarily be considered taxable income for the homeowner. So Congress in 2007 passed the Mortgage Debt Relief Act to ensure that loan forgiveness would not count as taxable income. California's state tax system paralleled the federal tax relief and SB 30 would extend the exemption through 2013, as the federal government did.
SB 30 should pass easily with support from Democrats and Republicans. The catch is that leaders in the Senate have made SB 30 contingent upon passage of SB 391.
Despite the economic crash, home prices in California still are expensive relative to incomes -- and state funds for affordable housing have run out or gone away with the dismantling of redevelopment agencies.
SB 391 would establish a housing trust fund with a designated revenue source. Like many states, California would rely on a document recording fee on real estate transactions. A modest fee of $75 is worth it to add an average of 10,500 new affordable apartments and single-family homes every year.
The Senate has passed both SB 30 and SB 391. The Assembly should, too.