California homeowners may be able to take advantage of principal reductions from Bank of America thanks to a new initiative in conjunction with the Hardest Hit Fund and the California Housing Finance Agency, as new efforts to offer principal forgiveness for underwater borrowers are underway in one of the nation’s hardest hit states, in terms of underwater home loans. Numerous financial institutions have been offering home loan modifications as a way to bring about more affordability when it comes to paying a monthly mortgage payment, but certain states, like California, have seen a particularly distressful situation as property values have plummeted and levels of unemployment have remained quite problematic.
Yet, Housingwire.com reported that Bank of America is one of the major lenders that will launch a new program in the coming weeks that could bring principal write-downs to California, as many states who are using funds from the Hardest Hit Program to offer solutions from their state housing agencies are looking for ways to address underwater mortgages, among other things. Many programs from the HHF which have been implemented in these particular states where unemployment and negative equity have been troubling are in a position to help homeowners find either unemployment assistance, underwater home loan aid, and there are even some states that may bring homeowners current when they are behind on their mortgage, but mortgage servicers usually have to sign on before homeowners can take advantage of these programs.
While principal reductions have been a debated issue and in the coming days major financial institutions are set to speak with government officials about offering more write-downs on a larger scale, typically in association with modifications, there are some commentators who feel that principle reductions could be problematic. Obviously, there are apparent reasons for some financial institutions opposing principle right down, but there are also complaints that some homeowners may receive principal forgiveness while other homeowners, who may also have negative equity but not as severe, may not qualify for a principal reduction, and many have seen this as a moral hazard.
Understandably, not all homeowners will be able to receive principal forgiveness even when negative equity is in place, but it’s hoped that solutions through either programs like the Hardest Hit Fund or initiatives directly from servicers will be able to offer some form of mortgage principal assistance if they write-down in a homeowner’s principal, coupled with a modification, prevent foreclosure and offer long-term solutions. Some homeowners may have received principal forgiveness, yet found themselves in a situation where they lost their home to foreclosure anyway, and it’s hoped that instances where this particular predicament arises can be avoided, but homeowners in a negative equity situation may be helped in the coming weeks as more banks and officials are beginning to address negative equity and principal write-downs.