Mortgage Principal Write-Downs For Homeowners–Will Principal Forgiveness And Reduction Options Become More Available?

Recent news about foreclosure settlements being worked out between various attorney generals from different states and major banks have led to the question of possible mortgage principal write-downs that could be available for homeowners, but this issue is definitely not one that is current or just now breaking, as principal forgiveness options and reductions for homeowners who are in a severe negative equity situation have been explored over the past month and has led many homeowners to question whether new situations which have arisen in the area of foreclosure prevention may lead to more availability for principal write-downs.

Sadly, there are many officials who are weighing in on the issue of principal write-downs and state that they do not want any forced principal forgiveness options to be put on major financial institutions, as there are some banks that do already offer limited principal reductions to homeowners who are facing severe negative equity and may be in a financial position where foreclosure prevention efforts like modifications are needed. Understandably, homeowners have seen drastic reductions in their equity in some areas of the nation and this has resulted to the homeowners simply walking away from their mortgage, but the issue of strategically defaulting has also become more complicated in the recent months.

It stated that when homeowners default on their mortgage, but keep other areas of their financial life intact and continue to make payments on debts like credit cards or loans, some lenders will still view these men and women as a relatively safe credit risk, which has taken some of the stigma off of walking away for certain homeowners. However, there are countless arguments against strategically defaulting as homeowners are often reminded that there are no guarantees, nor was there any certainty, when it comes to the value of their home constantly increasing.

There are homeowners who are currently able to meet their mortgage payments despite being a negative equity position, and it’s felt that if forced principal reductions are required of major banks, some of these homeowners may put themselves in a position where their bank is forced to help them despite being able to meet their underwater mortgage payment. Also, many homeowners have been opposed to principal reductions for homeowners with negative equity simply because there are opportunities to make home loan payments more affordable without reducing the overall, original debt that a homeowner agreed to pay.

Once again, there are some programs from banks that do offer principal forgiveness up to a certain point, but the levels of equity that homeowners have lost can be so severe that these minimal write-downs make only a small dent in what they owe, but in cases where homeowners are having trouble making mortgage payments on their underwater home, there are plans still available to help. The issue though, have recently surrounded the question of whether principal reductions should be required, and while there are banks that have helped homeowners in this capacity, it has been seen as unlikely that there will be any requirements that principal write-downs are to be made available to homeowners facing negative equity.