There's more to the mortgage relief bill than just mortgage relief

Having trouble making your mortgage payments? You mightbe able to make a change in your loan, thanks to the mortgage reliefbill President Bush recently signed into law. Under the bill, you canconvert your high-interest adjustable-rate loan to a lower-interestfixed-rate note if you meet what might, in a declining market, seem tobe Catch-22-like guidelines: Your payment must be more than 31% of yourincome, and your new loan cannot exceed 90% of your home's value. Helpis available -- provided you don't need it.

Starting October 1st, seller-paid down-paymentassistance grants will be outlawed for FHA loans. This is bad news forlower-priced neighborhoods in Metropolitan Phoenix, where as many asnine out of ten homes are being sold with down-payment assistance.Expect to see a flurry of this activity in the next two months.

But the left hand gives where the right hand takesaway: Buyers who have not owned a home for three years can take a$7,500 "refundable" tax-credit if they buy between April 9, 2008 andJuly 1, 2009. The credit is to be repaid over the next 15 years.

Perhaps the biggest change introduced by the bill is arevision of the capital gains exclusion rules. Since 1997, sellers havebeen able to deduct up to $250,000 of the capital gain on the primaryresidence from their tax burden -- up to $500,000 for married couples-- if they lived in the home for at least 24 months out of thepreceding 60. Under the new law, the deduction will be pro-rated overthose 60 months. If you live in the home for the full five years, youwill take the full deduction. If you live there for three years out ofthe five, you'll deduct only 60%.

In the long run, this will slow down the level ofresidence-churning seen among monied home-owners. In the short run,expect a lot of pricey homes to sell between now and January 1st, whenthe old exclusion goes away.