IRS tells homeowners how to get tax relief if a lender forgives part of their debt - latimes.com

Here's how to get tax relief if a lender forgives part of your debt.  This is an important point, as debt forgiveness is typically a taxable event (should you be fortunate enough to successfully negotiate a principal reduction or short sale, assuming you're unfortunate enough to need one). 

Early in the housing crisis, the Bush II administration initiated a policy, which remains today, exempting mortgage debt forgiveness from being taxable. - David

Mortgage Mess Breeds Unlikely Allies - WSJ.com

Jim Hagerty gives some valuable insights on the pros and cons of principal reductions in the minds of key lenders and investors.  Though the government seems to prefer extending due dates and lowering interest rates, the number of homes that are presently underwater tell us intuitively that this is an insufficient and unrealistic solution.  Political and fairness issues?  Sure, but do we want to help homeowners and the real estate economy or don't we? - David