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Fast Facts: MORTGAGE DEBT RELIEF

FACT: The Mortgage Forgiveness Debt Relief Act prevents households from having to pay taxes on certain types of forgiven mortgage debt, including debt reductions for principal residences, mortgage restructuring, and foreclosures. FACT: The Act was passed in 2007 to help struggling homeowners during the housing crisis. Without it, a homeowner 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 have been finalized, including 39,559 in August 2012 alone, according HOPE NOW data. If the Act is not extended, underwater borrowers who sell their home for less than what they owe could be required to pay 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 housing industry has improved in recent months (see data from the Fast Facts: RECOVERING HOUSING MARKET, August 2012); many homeowners are still hurting. In the second quarter of 2012, 2,470, 621 mortgages were 60+ days delinquent. Many people under water on their mortgages are unemployed, making it difficult to pay additional taxes. According to at the Center for Responsible Lending, 70% of homeowners that call the Homeowner's HOPE Hotline for mortgage assistance are unemployed or underemployed. Housing prices are still depressed, resulting in a larger amount of forgiven mortgage debt and thus 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, at FaithS@HopeNow.com October 2012

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

October 2012