Underwater Mortgage Principal Reduction Plans—Will Homeowners Stay In Their Homes?

Many lenders are taking part in the principal reduction plans that the Obama Administration recently announced as part of new, expanded programs within the Making Home Affordable home loan modification program.  Underwater mortgages have been causing trouble for lenders and homeowners over the past few months and it’s hoped these principal reductions will help struggling homeowners.

A principal reduction is hoped to keep homeowners from walking away from their mortgage by having them continue to make on-time mortgage payments, and by doing so they are going to see a reduction in their mortgage principal over time.

Homeowners that have been looking at a mortgage balance that is far greater than the value of their home have been asking for principal reductions since there are many who feel that getting any type of profit from their home would be impossible.  Homeowners that have an underwater mortgage haven’t been confident that their home’s value would increase anytime soon, so many just opted to walk away.

However, these new principal reduction plans are hoped to keep homeowners in their home by reducing the mortgage principal to an amount that is more in-line with the value of their home.  While principal reductions have been controversial, underwater homeowners are glad more emphasis is being put in this area of the housing crisis.