CUNA, along with banking, mortgage and real estate tradeassociations, is pressing Senate and House leadership to extend theMortgage Forgiveness Debt Relief Act before it expires at theend of the year.

The act, signed into law in December 2007, provides tax relief to borrowers by waiving taxesnormally due on amounts forgiven by lenders when a mortgage ismodified, or home is lost in foreclosure or sold in a short sale.If the law is not extended, homeowners would have to report theamount as taxable income, a requirement that CUNA said would makeit more difficult and expensive for homeowners to accept shortsales and modification offers.

The Dec. 14 letter, cosigned by the National Association ofREALTORS, American Bankers Association, Mortgage BankersAssociation and others, urged Senate Majority Leader Harry Reid(D-Nev.), Senate Minority Leader Mitch McConnell (R-Ky.), Speakerof the House John Boehner (R-Ohio) and House Minority Leader NancyPelosi (D-Calif.) to “ensure renewal of the Act before the end ofthis year in order to help as many underwater homeowners aspossible.” S. 2250, which would extend the law, was introduced bySen. Debbie Ann Stabenow (D-Mich.) in March 2012, but it has notemerged from the Finance Committee since. The bill has 19bipartisan co-sponsors.

The amount allowed to be forgiven is limited to $2 million andonly includes primary residences. Several states also passedlaws that forgive state income taxes owed on forgiven mortgagedebt; however, many of those also expire at year-end. Forexample, in California the Conformity Act of 2010 forgives statetax liability on mortgage debt only through Jan. 1, 2013.