Homeowners that are struggling in their mortgage are asking that principal reductions be made as many feel that without a reduction in the mortgage principal owed on their home there is little reason to continue paying. It is this line of thinking that has many homeowners walking away from their mortgage commitment, which is causing trouble for lenders and the housing market.
Principal reductions are unpopular among many lenders and many homeowners feel they are unfair. Homeowners that don’t have an underwater mortgage dislike principal reductions since it’s essentially taking a homeowner’s responsibility away. A homeowner has no guarantee that their home will increase in value, so it seems that principal reductions are keeping homeowners from having to deal with the loss.
However, some homes that are severely underwater go beyond this idea of principal reductions being unfair as homeowners that are looking at a difference in the price of their home versus their mortgage being in the hundreds of thousands range, it’s clear something went wrong.
People argue that homeowners that can’t afford their home shouldn’t live in it, but principal reductions aren’t necessarily for those looking to get help paying their mortgage, but are looking to adjust the principal on their home, which most likely had an inflated price to begin with. Even though they may be unpopular, principal reductions in areas where housing prices were inflated are the only thing keeping homeowners from walking away.