What is a mortgage loan forgiveness? How does it affect my credit?

Answer 1

"Foregiveness" is a rather gentle and kind term for what you describe. A lender sometimes will agree to what is called a 'short sale' in order to avoid the expenses of a foreclosure. If you do not pay the difference between what you owe and what the lender obtains for the house, you remain liable for this debt, and non-payment will definitely show up on your credit report.