The Obama Administration is now asking lenders to do more for underwater homeowners by way of principal reduction programs that are set to help homeowners that are looking at a mortgage where they drastically owe more than their home is worth.
Principal reductions are hoped to stop the new craze of homeowners simply walking away from their mortgage when they feel there is no way for them to get any value out of their home or cases where the price of their home has dropped significantly.
The way a principal reduction would work is, in most cases, a homeowner simply continues to make payments on their mortgage and over the span of two or three years, if they haven’t missed a payment, their principal will be reduced or even erased so that homeowners will not be paying on a home that has lost a substantial amount of value.
Many people are against principal reductions and there are lenders that are refusing to make these principal reductions for homeowners, as there is no law that says a home must increase in value or it is owed to homeowners that their house must turn a profit when and if they sell.
However, many distressed homeowners are just looking for a light at the end of the tunnel and ideally these principal reductions are going to give homeowners the incentive to stick with their mortgage payment and not give up hope on paying off their house.