Underwater mortgages have become more common across the nation as housing prices have fallen in many areas and left homeowners owing more on their home than their home is worth. This, obviously, is a troubling situation for many homeowners as some are struggling to make their mortgage payment and others have simply grown so frustrated they have walked away from their mortgage commitment.
Principal reductions are one of the common ideas that are being suggested to combat underwater mortgages, but not all lenders are on board with using this type of assistance. Some big lenders like J.P. Morgan and Wells Fargo don’t believe that mortgage principal reductions should be used on a wide scale.
Homeowners, understandably, disagree that principle reductions should not be used as many people feel their home has lost such a substantial amount of value that it is unlikely they will recoup this loss and ever be able to sell their home for a profit, if they so choose.
While the consensus among mortgage lenders is that principal reductions are not practical or fair in all cases, as an increase in a home’s value allows the homeowner to profit from their home but the lender can’t come in and increase their mortgage principal. Essentially, lenders say that principal reductions are leaving homeowners with everything to gain and nothing to lose and vice versa for banks.
However, there are lenders who believe that there are some situations that a mortgage principal is warranted. These cases include a situation where a homeowner is having trouble paying their mortgage due to a loss of value or homes that are in a location where it’s unlikely they will regain any of the value lost.
Homeowners are still being advised to contact their lender about assistance options available for underwater mortgages. While they may not come in the form of principal reductions, there are programs available to assist homeowners with an underwater mortgage.