Homeowners who have an underwater mortgage may have options from the Principal Reduction Alternative program, which is an extension of the Home Affordable Modification Program, and is hoped to provide underwater mortgage relief for homeowners who have seen a severe depreciation in their property value.
Those homeowners who have negative equity in their home had been quite frustrated, which is understandable when a situation has arisen where a homeowner owes more on their home than their property is actually worth. While principal reductions are part of certain underwater mortgage assistance programs, like the FHA short refinance program, there have been mixed results and lackluster success in terms of principle reduction offers.
There are accounts that programs like modifications do offer principal reductions as part of their efforts to make mortgage payments more affordable, but there have been servicers who have stated that they feel principal reductions are not helpful in sustaining affordability on mortgage payments over the long term. There have been earned principal forgiveness plans offered in the past, but this new Principal Reduction Alternative is hoped to give homeowners more options concerning their underwater mortgage predicament.
Yet, critics of the program say that it too may find minimal success as principal reductions through the PRA will be at the discretion of a mortgage servicer. Understandably, mortgage servicers and investors have been hesitant to grant principal reductions as essentially it is a loss of money from a property.
In all fairness, there had been principal reductions offered by some servicers, but many worry that this Principle Reduction Alternative Program may not offer the relief that homeowners with an underwater mortgage are seeking. However, in cases where homeowners are having difficulty meeting their mortgage payments, a principal reduction may be easier to obtain, but for homeowners who are current on their home loan and in a financial position to continue making their mortgage payment, these individuals may not be in a good position to receive a principal reduction on their home loan.