So, #1. The original program was essentially a rebate of your mortgage interest. If you were deducting mortgage interest as an itemized deduction, you should have been reducing the amount of your deduction by the amount of the rebate for every year that you receive the rebate. If not, you can either go back and amend your tax returns to reduce your deduction and pay the higher income tax amount, or you can hope that the IRS doesn't audit you.
#2. The check from the new bank is also essentially an interest rebate. If you never itemized your deductions to deduct mortgage interest, then the check is not taxable. However, if you've previously itemized your mortgage interest deduction, then this money is now taxable income because it is a "taxable recovery" of a previous deduction.
Report it as 1099 MISC income. Be sure to answer the questions about work with no, you did not intend to earn a profit, no, this is not similar to your regular job, etc. The income will be added to line 21 has "other income".
