Mortgage principal forgiveness through the use of write-downs offer a reduction in the overall home loan principal a homeowner must pay on an underwater home loan, which obviously has been sought after heavily by individuals with negative equity on both primary and secondary mortgages. While there have been some financial institutions who are hesitant to use principal reductions, a recent report on HousingWire.com made mention of a recent analysis conducted which showed that there were some offers for principal write-downs to homeowners who were facing financial difficulties.
It was mentioned that GMAC Mortgage and Ocwen Financial were singled out as two servicers who offered write-downs on either primary home loans, secondary mortgages, or a combination of both. These principal forgiveness options were made, in part, on subprime mortgages and current home loans in some cases, which is something that reportedly has not been common among many servicers. While there are some principal forgiveness options offered to subprime homeowners, as well as, permanent home loan modifications, there is still an outcry from underwater homeowners for more to be done in this area.
Obviously, principal forgiveness is something that underwater homeowners have been requesting from various servicers over the past months as home values have plummeted in some areas and left homeowners owing a substantial amount more on their mortgage than their home is worth. This problem gets worse in areas where home prices are unlikely to recover in the near future and has led some homeowners to question whether there is any incentives to stay in their underwater home loan which may not recoup value to a profitable point in the coming years.
While there have been opportunities for homeowners to find affordability when it comes to their home loan payment despite having negative equity, some homeowners who were able to meet their monthly mortgage payment were still in a bad situation due to the fact that opportunities for refinancing, as an example, were unavailable over the past year despite low interest rates being offered on home loans. Some homeowners, in the pursuit of a more affordable mortgage, wanted to refinance their home loan in the hopes of locking in a lower interest rate and possibly fixed-rate mortgage, but due to negative equity being present, they were unable to do so.
Fannie Mae and Freddie Mac do offer a refinancing opportunities for underwater homeowners and various servicers have also allowed homeowners to modify their mortgage for more affordable terms, but principal forgiveness is still something that eludes many underwater homeowners. Yet, there are some predictions that home prices may decrease further in 2011, so this may be an issue which servicers will have to address so that solutions may be provided to homeowners who see little reason to stay in their home.