Negative Equity And Refinancing For Homeowners–Can Principal Reductions Offer More Affordability For Underwater Home Loans?

Negative equity and refinancing options for homeowners has been a troubled aspect of the housing market and a source of financial difficulty that many individuals have faced over the past months due to the fact that there are some underwater refinancing options for homeowners, but there are also financial institutions who feel that principle reductions may not be able to offer the affordability that underwater homeowners need. Two of the major programs that homeowners may have access to when it comes to dealing with their underwater mortgage is the Making Home Affordable initiative and the FHA Short Refinance Program, but there are still issues and questions homeowners have concerning these initiatives.

However, there are also options that may help individuals in a negative equity situation through the Hardest Hit Program, but it comes down to a homeowner’s position, the severity of their underwater mortgage, if they are in imminent threat of defaulting, and if they can afford their home loan payment as to whether some of these options may be available. Recently, the Treasury Department released the March Housing Scorecard which stated that while there are still efforts being made from the modification program and alternative programs to assist troubled homeowners, many still see the housing market to be in a fragile state and continued efforts must be made to prevent unnecessary foreclosures.

Yet, when issues like unemployment and underwater home loans remain so widespread in many states, there are obviously frustrated homeowners who feel like there are either no options for their particular situation or finding an affordable solution will be almost impossible. However, options like the Home Affordable Refinance Program and the FHA’s Short Refinance Program are two assistance efforts that are being singled out by officials to potentially aid homeowners in a negative equity situation. While the FHA short refinance program is a potentially a valuable asset for underwater homeowners, as it not only offers a principal reduction but the option to refinance for a more affordable home loan rate and payment, this initiative has yet to fully get off the ground and there have been officials who have called for the program’s termination.

However, options from the Hardest Hit Fund may also bring help for homeowners in states that have been particularly affected by negative equity, as there are some programs that may benefit homeowners by bringing them current on their mortgage if they are behind or simply offering a principal reduction plan that may provide capital to homeowners that will reduce the outstanding principal they have, but there may be some financial institutions who are resistant to forgiving a homeowner’s principal.

Some major banks are willing to work with homeowners who are in a financial position where their mortgage payments have become problematic due to negative equity or other financial strains in their life, and in these cases, if a mortgage principal reduction will be helpful in making their home loan payment more affordable, there are these plans in place that may be offered. Yet, some of these financial institutions have stated that if homeowners are able to pay their monthly mortgage payment on their home loan despite being in a negative equity position, no principal forgiveness will be offered.

While there are these options for homeowners in negative equity situation that may bring more affordability in cases where the property owner is having trouble making payments and may risk default or foreclosure, homeowners who are in a decent financial position and can still make their payment on an underwater mortgage may not have as many options for refinancing, when it comes to principle forgiveness that will bring their home’s value closer to the current property value. Yet, troubled homeowners are still being prompted to explore Making Home Affordable efforts, the FHA’s underwater refinancing program, or even plans from their state’s housing agency that may help address negative equity issues and bring more affordability when an underwater mortgage is creating problems to the point where a homeowner may lose their home.