Obama Principal Reduction Program For Under Water Homeowners—Is It Working?

Homeowners with an underwater mortgage are finding that many lenders are hesitant to make principal reductions on their mortgage.  The Obama Administration has asked that lenders make principal reductions and work with underwater homeowners, but some lenders are just simply not going to do so.

Lenders that are resistant to making principal reductions feel that doing this type of mortgage modification is going to not only set a bad precedent but it’s unfair to other homeowners and it may promote banks to get out of the mortgage business.

The argument against principal reductions goes on to say that by making home principal amounts adjustable, it eliminates any type of binding agreement with a mortgage contract.   Homeowners would be allowed to drop their principal amount lower if their home’s value decreases, but if their home’s value increases they would keep the low mortgage principal and stand to make a profit if they sold.

This is one major problem, as mortgage lenders feel that principal reductions stack the deck in favor of homebuyers to win no matter what happens.

Outraged homeowners cite the bailout of many big banks was essentially a reward or win-win situation for doing bad business, and homeowners argue that housing prices were inflated over the past years so they deserve a principal reduction.

While it is a controversial subject, principal reductions are being made by some lenders, but homeowners with underwater mortgages must call their mortgage lender to see what options, if any are available.