Obama Mortgage Modification Underwater Principal Reductions–Are They The Solution?

The Obama administration’s mortgage modification program is hoping to deal with underwater mortgages in the coming months through making principal reductions on homes where homeowners owe more than their home is worth. Many homeowners have been asking for principal reductions as homes have seen a drop in value in many areas around the nation.

However, lenders have been unwilling for the most part, to make principal reductions on homes that have lost value because they feel that doing so makes the entire mortgage contract negotiable or even non-binding and in favor of the homeowner. For example, if a home’s value increases a bank or mortgage lender is not allowed to charge the homeowner more, so many lenders feel that just because a home has lost value homeowners should not be charged less.

Obviously, homeowners disagree with this as many homes have lost a substantial amount of value and since there have been such widespread underwater mortgages many homeowners say that their homes’ had inflated prices and as a result banks should adjust principles to an amount that is more in line with the home’s true value.

While the Obama administration’s plans have not been put into effect fully and more is set to be done in the coming months, there are lenders who are offering principal reductions and lenders that are resistant to principal reductions say they may do so in specific cases where a home has lost value and is in an area that is unlikely to see any of that value recouped.

Homeowners that are struggling with an underwater mortgage are being advised to contact their lender about options available to them in dealing with these underwater mortgages. While not all lenders may be offering principal reductions there are there are mortgage assistance plans that are available for homeowners that are struggling.