Underwater Mortgage Refinancing For Distressed Homeowners—Are Banks Helping?

There have been a few financial institutions that are saying they are going to stop or no longer consider as many principal reductions for homeowners.  JP Morgan Chase has been one of the big banks that have had a standing policy of not making principal reductions and it seems that other lenders are looking to get on board with that practice as well.

Lenders are arguing that reducing the principal on a homeowner’s mortgage or reworking their mortgage to fit the current market value completely changes the way lenders will make mortgage loans, if they continued to make them at all.  Those opposing mortgage principal reductions have a variety of reasons they are doing so, one being it makes home values almost useless as principal reductions makes them flexible after the mortgage is taken out.

Also, lenders are saying that housing values are like stocks, in that they can go up and down in value, but the principal owed can’t change after a homebuyer has committed to a mortgage plan, and that’s just a fact homeowners must accept and live with.  Also, like stocks, a homeowner can stand to make a profit on an increase, but they must be willing to accept a loss as well.  Homeowners aren’t guaranteed their home will increase in value so homeowners are going to have to live with the value of their home be it good or bad.

Homeowners argue that home prices were inflated, since so many homes all over the country have seen a decrease, so they should be given a principal reduction that is more in line with the true value of their home and not the inflated price.

Some lenders are still making principal reductions for underwater homeowners, but this practice of not allowing principal reductions seems to be becoming more and more popular among lenders.

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