Homeowners with an underwater mortgage are in a very frustrating situation and it is for this reason that the Obama administration has set out a principal reduction plan for underwater mortgages. Ideally, principal reductions would simply lower the principal amount on a mortgage over time as long as the homeowner makes on-time mortgage payments.
However, many lenders are not on board with this program as they feel that principal reductions are not something that are practical to use on a wide scale. Widely used principal reductions are, according to lenders, an unfair practice to both mortgage lenders and homeowners who may have an underwater mortgage but not qualify for a principal reduction.
Lenders feel that by lowering the principal amount on home it puts them in a can’t-win situation and a homeowner in a can’t-lose situation. Some lenders have said there are specific cases where a principal reduction may be warranted, but again, this is not something to be used for every underwater mortgage.
Homeowners that are struggling with an underwater mortgage are still being advised to contact their lender even if that lender is unwilling to use a principal reduction. Many lenders have created alternate programs and solutions to help with underwater mortgages, so anyone facing a mortgage that is higher than their home’s value should look to their lender for options about making their homes more affordable.