Homeowners that have an underwater mortgage, meaning they owe more on their home than the home is worth, are finding paying their mortgage to be difficult in many ways. It is for this reason that the FDIC is looking into a plan that would reduce the principal on a homeowner’s mortgage if their home is underwater and they meet certain requirements.
Homeowners have reportedly grown so frustrated with underwater mortgages and the trouble they have in paying more on a home than it’s worth that they are simply walking away from homes, which is going to hurt their credit score and cause trouble for mortgage lenders as well. This plan by the FDIC is aimed to help those homeowners by reducing the principal on their mortgage if they keep up with their mortgage payments.
This is aimed at homeowners who have a considerable underwater mortgage and is hoped to give them an incentive to continue paying on their home loan. Obviously, it is a frustrating situation for homeowners who feel that waiting for their home’s value to increase isn’t worth the effort, especially if they are having trouble making their mortgage payments due to a loss of income because of unemployment.
Lenders have not used the principal reduction option that much due to the fear that homeowners would abuse it. Some homeowners who are looking at an underwater mortgage are able to pay their mortgage payment and lenders feel they should continue to do so, but if a national principal reduction program were in place, that may not happen.
Nonetheless, this program by the FDIC is in a testing phase and the results will most likely give an indication on whether a similar, widespread program would be successful in combating the foreclosure and underwater mortgage troubles facing homeowners.
Source consulted: Washington.com
