A principal reduction plan from the Making Home Affordable Program may offer certain homeowners who have an underwater mortgage the opportunity to have a percentage of their mortgage principal forgiven. Numerous homeowners have been seeking a reduction in their principle when an underwater mortgage situation is present, but there are servicers who feel that principle reductions are simply unhelpful in cases where a homeowner is struggling to meet their mortgage payment.
There are various underwater mortgage assistance programs available, like those from the FHA and from the Obama Administration’s modification plan, known as the Home Affordable Refinance Program, but homeowners who simply have been seeking a reduction in their mortgage principal due to a drastic loss in value have been met with a difficult road in some cases.
Yet, one of the main criticisms of these principal reduction programs are they will be at the discretion of a mortgage servicer. While there have been some financial institutions who have offered principal reductions or earned principal forgiveness programs, many critics feel that principal reduction plans for underwater homeowners will be largely unsuccessful since the majority of financial institutions working with underwater homeowners will be unwilling to take a loss in this area.
Earlier this year, there were statements made by some financial institutions who said that they may consider principal reductions in cases where homeowners face imminent default or foreclosure, or in areas where home values are unlikely to increase in the near future. However, problems with principal reductions usually come in the form of homeowners who are either unable to make their mortgage payment due to the type of mortgage they have or homeowners who can meet their mortgage obligations but have seen their property’s value decrease.
While it’s hoped the more servicers may be willing to offer principal reductions in cases where homeowners face the loss of their home as a result of negative equity, there is, again, concern that servicers may be unwilling to drop a homeowner’s principal if they can continue meeting payments. The Principal Reduction Alternative program is another plan which is hoped to offer underwater homeowners more affordability in their mortgage, but there are options like HARP and the FHA’s short refinance program if homeowners are unable to benefit from this particular underwater principal reduction program.