Mortgage principal reduction plans for homeowners in a negative equity situation has brought some options for homeowners who may face the loss of their home due to the devaluation in their property and subsequent financial hardships that have come in relation to meeting their monthly mortgage payment. Plans like the Principal Reduction Alternative Program and the Hardest Hit Fund have offered some options to homeowners who are seeking this debt relief from an excessive mortgage principal in relation to their home’s current value.
However, there are some financial institutions that have not been eager to offer principal reductions through either modification efforts, simple forgiveness plan, or initiatives like the FHA’s short refinance program. Some of these banks have stated that in cases where homeowners are able to meet their monthly mortgage payment, there should be no forgiveness of principle as individuals in a position where they can continue meeting their mortgage payment but are given a principal reduction could create a problematic scenario in the housing market and for various financial institutions.
Essentially, homeowners who are forgiven a percentage of their principal are, obviously, on a road that can help them erase their mortgage debt faster, but homeowners who may not have seen a principal reduction are still paying what they originally owed plus interest, which many homeowners feel to be simply unfair and morally questionable as there are no guarantees that a homeowner’s property value will or should increase over time and, even though some argue that their mortgage price was inflated, there are those who feel these homeowners must simply deal with their loss and continue to honor their mortgage obligation.
Yet, there have been programs like the Principle Reduction Alternative initiative that may offer homeowners the option of having their mortgage principle reduced in instances where a homeowner’s mortgage is worth significantly more than their property value. According to the Making Home Affordable website, more than 100 servicers participating in HAMP are being required to look at a homeowner’s particular situation to see whether a principal reduction is warranted.
Understandably, consumers who are in a position where they can show sufficient loss of income or document financial distress may be in a better position to acquire one of these production plans, but there are issues that, again, have arisen when some financial institutions have stated homeowners able to meet their monthly payment on their home loan simply are not going to be given assistance in this capacity. However, there are offers from state-specific plans that may address negative equity issues as well, so homeowners who are looking for more affordability in their underwater home loan may also want to explore programs from the Hardest Hit Fund if this initiative is available in their state.
While negative equity is a difficult problem for some and obviously produces a frustrating situation, some consumers may not have the option of using one of these principal reduction programs unless foreclosure or defaulting is an immanent threat.