In various areas of the country home prices have continued to remain low or have even fallen in some cases, and this has brought about more homeowners inquiring about principal reduction plans when an underwater home loan has begun to be problematic for their financial situation. While principal reduction is a topic that can be debated on whether it is helpful or fair, continued inquiries into this subject has led to an extensive amount of coverage as there are various aspects of underwater mortgage principal forgiveness that some homeowners may still be unaware of or as there are new homeowners entering into a situation where they are facing negative equity, some may still simply be uneducated on this topic.
However, there are plans which do offer mortgage principal reductions for homeowners facing negative equity, but there are aspects of these programs that must be understood as a mortgage principal reduction is not guaranteed for every homeowner. As an example, programs like the Principal Reduction Alternative plan, various Hardest Hit Fund programs, and the FHA’s short refinance plan are just a few of the programs that have been reported on earlier this year and late last year, as more homeowners were beginning to face problems related to devaluation in their property.
What homeowners must understand though is that none of these programs are required to be used by servicers, simply meaning that banks do not have to offer principal forgiveness even if they do allow a homeowner to participate in certain foreclosure prevention or underwater refinancing plans. While opportunities like the FHA short refinance plan was set to offer homeowners not only the option of refinancing to a more affordable rate on their underwater home loan but principal forgiveness as well, there have been fewer homeowners who were able to use this program than had been hoped.
Yet, as negative equity continues to be present in the lives of numerous homeowners across the nation, with some areas seeing underwater mortgages as almost 25% of their local housing market, there are some who feel financial institutions may begin working more with homeowners to offer principal reductions, particularly in cases where a homeowner’s ability to afford their mortgage payment is being influenced by negative equity. Homeowners do need to realize that even if foreclosure is prevented through modification efforts or other programs to address the potential loss of a home, principal forgiveness is not necessarily guaranteed to follow, so homeowners are being prompted to either speak with their mortgage servicer about potential forgiveness of their mortgage principal or speak with a certified HOPE Hotline housing counselor for information that may be more relevant to a particular homeowner’s negative equity situation. While again, many homeowners are calling for principal reductions, it may heavily depend on a homeowner’s situation and their mortgage servicer as to whether these particular options are going to be available or offered.