Homeowners who are facing difficulty with their home loan can find themselves in a situation where a underwater mortgage is present, and for this reason, there has been concern over opportunities which homeowners may need to either continue meeting their monthly mortgage payment or simply stay in their home. Principal forgiveness and home loan modifications are often a topic which is disagreed upon by homeowners and servicers, yet there are those who argue that options for principal forgiveness on underwater mortgages may help foreclosure prevention options in the future.
In an article on HuffingtonPost.com it was stated, “…the Congressional Oversight Committee admitted the government’s HAMP loan modification program has failed to help enough homeowners to stem the tide of foreclosures. The vast majority of loan modification requests fail, in part, experts believe, because banks have balked at offering a reduction in mortgage principal, the most effective way to halt costly foreclosures.”
Obviously, there are still foreclosure prevention opportunities available to homeowners in underwater mortgage situation as traditional modifications and plans like the Home Affordable Refinance Program have also given opportunities for homeowners to find more affordability in their monthly mortgage payment when negative equity is a problem. However, there are questions remaining over whether homeowners who may be current on their home loan and in a severe negative equity situation or homeowners who are finding foreclosure prevention programs unhelpful have incentives to stay in their home.
Homeowners who strategically default has been a problem as many have found that when negative equity is an issue, there are some instances where a home’s value may take years to return, if it will return to its original level at all, and for homeowners who view their property as an investment, there is little incentive to stay.
There are some underwater assistance plans which may provide a lower monthly mortgage payment for some, but when a homeowner knows they will be paying on a mortgage which is much greater than their home’s value, this is understandably a frustrating situation which many want addressed. There are some financial institutions that offer homeowners the opportunity to participate in an earned principal forgiveness plan, but this obviously is not always available and not all homeowners may qualify.
While there are still arguments over whether principal reduction does truly help when it comes to the affordability of a home and the success of the Making Home Affordable Program, it’s obvious that more homeowners want options to have a percentage of their principal forgiven when severe negative equity is present. Yet, currently there are more options available to homeowners when it comes to finding affordability in their mortgage payment or short selling at home, but it’s hoped that more financial institutions will be able to offer some form of principal forgiveness in the future so that homeowners can find affordability and some peace of mind in a situation where they are struggling to just keep their home.