Underwater Mortgage Principal Reduction Troubles—Can Homeowners Find Help?

Many homeowners with an underwater mortgage are looking for assistance from principal reductions.  Some lenders claim they have in-house principal reductions and a proposed extension to the Making Home Affordable Program is asking lenders to make principal reduction plans available to homeowners that are struggling with owing more on a home than the home is worth.

The trouble that may arise is mortgage lenders are not required to take part in the Obama Administration’s principal reduction plan and many lenders are saying they either will not offer principal reductions or they will not offer reductions across the board, meaning they will not be as widespread as home loan modifications.

Lenders that are not on board with extensive principal reductions cite that homeowners, who may benefit from a principal reduction, fall into the category of those who are finding their mortgage payment to be too hard to meet as a result of being underwater, like those with an Adjustable-Rate Mortgage.

While principal reductions aren’t popular, some lenders say they will make principal reductions for underwater homeowners, but the extent to which they will do so remains to be seen.  However, it’s hoped that lenders will provide additional programs or options for underwater homeowners if they are unwilling to offer principal reductions.