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Mortgage Forgiveness is now law
WASHINGTON (12/31/07)--The Mortgage Forgiveness Debt Relief Act of 2007 became Public Law (PL) number 110-142 with the stroke of President George W. Bush's pen just before/after Congress adjourned for 2007. The act, signed into law Dec. 20, is intended to provide temporary tax relief to homeowners who might lose their home to foreclosure or who negotiate a loan modification. Previously under the country's tax code, if a lender--voluntarily or involuntarily--forgave a portion of a borrower's mortgage debt, the forgiven amount had to be treated as taxable income. Credit unions and other lenders had to file Form 1099-C, "Cancellation of Debt," to report to the Internal Revenue Service any debt of $600 or more cancelled or forgiven. The new law allows the discharge of indebtedness on loans up to $2 million and secured by the borrower's principal residence not to trigger federal income taxation. PL 110-142 covers only discharges made between Jan. 1, 2007 and Dec. 31, 2009. Kathy Thompson., SVP for compliance for the Credit Union National Association, reminds credit union that 1099-C filing requirements haven't disappeared for any discharge of indebtedness of $600 or more. Credit unions are expected to file their 1099C forms as usual. "Also, we will be watching for guidance I assume the IRS will release on how to handle information returns in these situations for this temporary period," Thompson said. In a statement issued at the bill's signing, the President noted the serious strains on the country's housing market. "Home values have fallen in many parts of our country. At the same time, many homeowners with adjustable rate mortgages have seen their monthly payments increase faster than their ability to pay. And now some homeowners face the prospect of foreclosure," he said. He noted recent steps taken by his administration meant to address the problems, included increased flexibility for the Federal Housing Administration to refinance loans for struggling homeowners and the assemblage of a private sector group of lenders, loan servicers, investors, and mortgage counselors called the HOPE NOW Alliance.
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