Today per Bloomberg, Congress has passed a new tax law which will make mortgage insurance deductible in 2007 for some:

Premiums on private and government mortgage insurance will become tax deductible next year for some borrowers for the first time under legislation passed by the U.S. Congress. Bills which include the change were passed yesterday by the House and early today by the Senate. Borrowers who make less than $100,000 a year will be able to write off the full amount of their premiums. Homeowners making more than $110,000 won’t be eligible. … The tax breaks, which will take effect for new loans next year, will result in average tax savings of between $300 and $350, according to Howard Glaser, a Washington lobbyist and former senior official in the Department of Housing and Urban Development, which oversees the FHA.

Mortgage insurance is typically required of borrowers who lack the money to make a 20 percent down payment on a house, although alternative measures of financing have led to a decrease in reliance on mortgage insurance in recent years. One common alternative, called ‘piggybacking,’ employs taking a second loan out to cover the 20 down payment. Not surprisingly, mortgage insurance companies hailed the decision, which seems likely to increase the use of mortgage insurance among homebuyers who qualify for the deduction. “We congratulate Congress for helping low- and moderate-income Americans overcome barriers to homeownership,” Said Steve, CEO of PMI Mortgage Insurance Co., whose company is one of the nation’s leading providers of mortgage insurance. “By making mortgage insurance tax deductible, Congress is addressing the key issue of housing affordability for many homebuyers.” “Many homeowners who used adjustable and exotic loans to buy houses during the housing boom of the last few years are now feeling the pinch as their interest rates reset,” said Kevin Schneider, president of the U.S. mortgage insurance business for Genworth Financial, Inc., an insurance holding company that provides mortgage insurance nationwide. “This new legislation gives homebuyers the option of choosing a low down payment mortgage that offers both tax deductibility and fixed monthly payments. This is an important step forward for U.S. housing.”