Bank of homeowners may have opportunities to find more affordability in their home loan when they are in an underwater mortgage situation thanks to forgiveness plans that could offer principal forgiveness. Earlier this year, Bank of America announced their earned principle forgiveness program, which offered some homeowners the opportunity to have a percentage of their principal forgiven over time if payments are continually made. Simply put, homeowners who are able to meet their underwater mortgage payment, under certain conditions, could see their mortgage principal lowered to its market value by being in a negative equity situation at the present time.
Yet, there were also homeowners who were able to refinance their underwater mortgage through the Home Affordable Refinance Program, but these homeowners had to have their home loan guaranteed or owned by Fannie Mae and Freddie Mac. Obviously, Bank of America homeowners are not alone when they have been seeking principal forgiveness on negative equity home loans, but there have been many servicers who were hesitant to offer a reduction on a homeowner’s principal, especially if they were able to make their mortgage payments.
However, the Making Home Affordable Program does offer homeowner who receive a permanent home loan modification the opportunity to receive a principal reduction over a five-year period. Obviously, since Bank of America participates in the federal modification program, homeowners may be able to see a reduction in their mortgage principal through this option as well. The Home Affordable Modification Program states that homeowners who make timely payments will receive a principal reduction of up to $5000 over the course of five years. Also, homeowners who have a second lien on their home may qualify for a principal reduction of up to $1250 over five years, which may also be beneficial to some homeowners facing a negative equity problem on their home.
While there was the introduction of the Principal Reduction Alternative program, this was at a servicer’s discretion and, again, there have been some financial institutions who have been hesitant to use principal reductions as a way to offer affordability to homeowners. Bank of America, and other mortgage servicers, have all reportedly offered principal reduction opportunities for certain homeowners, but again, this may be limited to only specific cases as there are banks who feel principal reductions do not help with affordability or foreclosure prevention.
However, homeowners who are struggling with an underwater home loan situation may have options from Bank of America, or their particular mortgage servicer if their home loan is serviced by another financial institution, but these underwater home loan assistance plans may come in the form of modifications or interest rate reductions, rather than the forgiveness of a percentage of a homeowner’s principle. Yet, advisers are still prompting homeowners to contact certified housing counselors or simply speak directly with their home loan servicer if negative equity has become a problem and homeowners fear the threat of foreclosure may be drawing near.