Underwater Mortgage Assistance Through The Principal Reduction Alternative Program–New Treasury Data On Principal Forgiveness

Underwater homeowners who have been focused of lowering their mortgage principals, particularly in cases where severe problems with negative equity are present, are finding that while there are some options available for this mortgage need to be met, but there have been some complications arise.  Yet, the Principal Reduction Alternative initiative has been one of the more widely known options to offer reduced principal options for homeowners, but there are other plans that may offer those with mortgage payment problems on top of devaluation issues some relief from their distress.

While the issue of principal forgiveness is one that has been greatly debated over the past months, the Treasury Department released information on the PRA option that some homeowners have been granted by their servicer.  It was reported in this data that for homeowners who were offered an active permanent modification, the average reduction was around 32.2% while the dollar average was over $69,000.  There are those who have seen severe reductions in their home’s value and in cases where a second mortgage may be present, are looking at a situation where a great deal more is owed on their home that it’s current value.

It would seem, though that the complications that come from principal reductions have arisen in the form of servicers simply feeling that not all negative equity situations warrant such an action.  There are, of course, some banks that feel a homeowner should not be given an type of forgiveness on their mortgage principal particularly if they can make their mortgage payment and are not in danger of defaulting.  Also, programs like the Principal Reduction Alternative plan are not required by servicers, so this could lead to some banks offering more principal forgiveness than others.

If we go back to the data from the Treasury we see that there are 16,017 active trial modifications with a PRA option in place and only 4,911 permanent modifications that are active with a PRA as part of the agreement.  This would suggest, when we look at the total number of trial modifications and permanent modifications that are active, those with this particular for of principal forgiveness in place are definitely not the majority.  There have also been few reports about a wide number of homeowners being assisted through plans like the FHA short refinance initiative, but there are now state programs that may be able to help homeowners in certain areas when it comes to dealing with negative equity on their home.

Nevertheless, homeowners should remember that there is nothing guaranteed in the area of foreclosure prevention assistance as even modifications are sometimes denied to homeowners who are seemingly a good fit for the program.  While there is still some forward progress being seen in the modification program, homeowners looking for drastic reductions on their underwater home loan may have few options available and a tougher road to travel.