Obama Principal Reduction Plan For Underwater Homeowners—Are Lenders Helping?

Principal reduction options from the Obama Administration’s Home Loan Modification Program are hoped to be made available to more homeowners as underwater mortgages take more of a toll on homeowners as days go by.

However, principal reductions have not been popular with lenders as they feel that a home’s value isn’t adjustable.  Lenders say that when a homeowner signs a mortgage agreement, they are agreeing to pay for that home at that value.  Also, mortgage lenders claim that homeowners want to set a precedent that they will only gain a profit on their home and not suffer any loss.

Homeowners argue that home prices were highly inflated over the past years and that as a result there have been widespread troubles with underwater mortgages.  These false, inflated prices forced homeowners to buy a home whose value was too high, and as a result there should be principal reductions made.

Lenders, again, feel that homeowners were not forced into buying a home, but chose to do so, and inflated price or no, homeowners have agreed to pay that amount on a mortgage.

Yet, principal reductions still remain a focus for many homeowners and legislators that feel the housing market needs principal reductions to stabilize homeowners and home prices.  Homeowners with an underwater mortgage are being advised to talk to their lender about options in dealing with their underwater mortgage, as again, some lenders are not offering this service.