7/31/2019 Fast Facts: Mortgage Debt Relief

1/2

October 2012

To: Fast Facts List

Fast Facts: MORTGAGE DEBT RELIEF

FACT: TheMortgage Forgiveness Debt Relief Actprevents households from having to pay taxes on certaintypes of forgiven mortgage debt, including debt reductions for principal residences, mortgage restructuring, andforeclosures.

FACT: The Act was passed in 2007 to help struggling homeowners during the housing crisis. Without it,ahomeowner who owes $300,000 on his mortgage and sells his house for $250,000 would owe taxes on the$50,000 balance thats forgiven, because it would be considered income by the Internal Revenue Service.

FACT: The Act is set to expire on December 31, 2012, as part of the fiscal cliff. If it is not extended,thousands of families could face a substantial tax payment. For example:

Thousands of short sales would be impacted. In the past two years,over 1 million short sales havebeen finalized, including 39,559 in August 2012 alone, according HOPE NOW data. If the Act is notextended, underwater borrowers who sell their home for less than what they owe could be required topay taxes on the forgiven debt, based on state laws and investor agreement.

Thousands of modifications would be impacted. Since the Home Affordable Modification Program(HAMP) began, over $6.7 billion of principal reductions for mortgage modifications have been realized.Moreover, the recent AG settlement included principal reductions of $749.36 million. If the Act is not

extended, future savings from principal reductions would be taxable.

Millions of borrowers likely will need mortgage debt forgiveness in 2013. While the housingindustry has improved in recent months (see data from theFast Facts: RECOVERING HOUSINGMARKET, August 2012); many homeowners are still hurting. In the second quarter of 2012,2,470, 621mortgages were 60+ days delinquent.

Many people under water on their mortgages are unemployed, making it difficult to payadditional taxes. According to at the Center for Responsible Lending,70% of homeownersthat call theHomeowner's HOPE Hotlinefor mortgage assistance are unemployed or underemployed.

Housing prices are still depressed, resulting in a larger amount of forgiven mortgage debt andthus a larger tax responsibility. Average home prices are down 20-25% over the past five years.

On October 12, 2012, HOPE NOW and The Financial Services Roundtable hosted a Congressional lunch and

learn on the impact of mortgage debt forgiveness. If you would like information on what was discussed in this

panel or mortgage debt forgiveness, please contact Faith Schwartz, Executive Director of the HOPE NOW

Alliance, atFaithS@HopeNow.com

http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-http://blogs.wsj.com/developments/2012/08/30/five-questions-will-i-owe-taxes-on-forgiven-mortgage-debt/http://blogs.wsj.com/developments/2012/08/30/five-questions-will-i-owe-taxes-on-forgiven-mortgage-debt/http://www.hopenow.com/industry-data.phphttp://www.hopenow.com/industry-data.phphttp://www.hopenow.com/industry-data.phphttp://www.hopenow.com/industry-data.phphttp://www.fsround.org/fsr/pdfs/fast-facts/ff-2012-08-02-Helping-Homeowners.pdfhttp://www.fsround.org/fsr/pdfs/fast-facts/ff-2012-08-02-Helping-Homeowners.pdfhttp://www.fsround.org/fsr/pdfs/fast-facts/ff-2012-08-02-Helping-Homeowners.pdfhttp://www.fsround.org/fsr/pdfs/fast-facts/ff-2012-08-02-Helping-Homeowners.pdfhttp://www.hopenow.com/industry-data.phphttp://www.hopenow.com/industry-data.phphttp://www.hopenow.com/industry-data.phphttp://www.995hope.org/news-center/hpf-at-a-glance/http://www.995hope.org/news-center/hpf-at-a-glance/http://www.995hope.org/news-center/hpf-at-a-glance/http://www.hopenow.com/hotline-aboutus.phphttp://www.hopenow.com/hotline-aboutus.phphttp://money.cnn.com/2012/07/24/real_estate/home-values/index.htmhttp://money.cnn.com/2012/07/24/real_estate/home-values/index.htmmailto:FaithS@HopeNow.commailto:FaithS@HopeNow.commailto:FaithS@HopeNow.commailto:FaithS@HopeNow.comhttp://money.cnn.com/2012/07/24/real_estate/home-values/index.htmhttp://www.hopenow.com/hotline-aboutus.phphttp://www.995hope.org/news-center/hpf-at-a-glance/http://www.hopenow.com/industry-data.phphttp://www.hopenow.com/industry-data.phphttp://www.fsround.org/fsr/pdfs/fast-facts/ff-2012-08-02-Helping-Homeowners.pdfhttp://www.fsround.org/fsr/pdfs/fast-facts/ff-2012-08-02-Helping-Homeowners.pdfhttp://www.hopenow.com/industry-data.phphttp://www.hopenow.com/industry-data.phphttp://blogs.wsj.com/developments/2012/08/30/five-questions-will-i-owe-taxes-on-forgiven-mortgage-debt/http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

7/31/2019 Fast Facts: Mortgage Debt Relief

2/2

October 2012

View all previous Fast Facts at www.RoundtableResearch.org

For over 100 weeks, the Roundtable has delivered Fast Facts to select opinion leaders in the financial services

industry, Congress, and media. Fast Facts provides easy-to-understand, reliable research about current issues

facing the financial services.

Financial Services HOTLINE: If you have questions about this topic or any other issue facing financialservices, please reach out to Abby McCloskey,Director of Research at the Financial Services Roundtable, at202-589-2531 or Scott Talbott, Senior Vice President of Public Policy, at 202-289-4322.Learn more about the Financial Services Industry atwww.OurFinancialFuture.com.OurFinancialFuture.com is continuously updated to bring you the most useful information about the industry inreal-time.

http://www.roundtableresearch.org/http://www.ourfinancialfuture.com/http://www.ourfinancialfuture.com/http://www.ourfinancialfuture.com/http://www.ourfinancialfuture.com/http://www.roundtableresearch.org/