Principal Reductions—Obama Administration’s Plan For Underwater Mortgages

Underwater mortgages have become a big problem for both homeowners and the housing market.  It’s for this reason the Obama Administration has expanded their home loan modification program to aid homeowners with an underwater mortgage by offering principal reductions.

When a homeowner owes more than their home is worth it’s a very trying situation.  So, to help stabilize the housing market and keep homeowners from walking away from their mortgage, lenders are being asked to make principal reductions to counter falling home prices.

There are many people who feel the home loan modification program was lackluster at best and they worry that principal reductions are going to be even less popular with lenders and overall are unfair.

Obviously, homeowners with an underwater mortgage disagree, but opponents of principal reductions feel that a home has no guarantee to increase in value, like a stock, so forgiving homeowners of what they owe on their home is unfair since homeowners that would have made a profit from an increase in the value of their home would have taken the reward, but are unwilling to suffer loss.

However, many claim that housing prices were so inflated over the past few years that homeowners now experiencing an underwater mortgage as a result of the devaluation of their home deserve some help since they bought an overpriced home.

No matter anyone’s opinion on this subject, principal reductions are available, though not by every lender.  It’s hoped that more lenders will get on board with principal reductions and make progress in correcting the trouble that many are having due to falling home prices.