When all is said and done, there are some analysts who feel that home prices will have fallen around 50% or more from their peak years ago, and for homeowners who are already in a negative equity situation, this has been troubling news as there are limited options for underwater homeowners when it comes to finding mortgage payment assistance or a mortgage principal reduction program. Yet, despite the fact that there have been some proposals in the past for mortgage principal reduction assistance plans, some have either failed to get off the ground or are limited in the number of banks that actually make these opportunities available to their homeowner.
It was recently reported that the FHA’s short refinance program has basically fallen flat, despite the fact that there were benefits to be gained by homeowners within this particular initiative, as a principal reduction and a refinance opportunity were what homeowners were offered from this particular underwater mortgage assistance plan. Yet, when it comes to forgiveness of a homeowner’s unpaid mortgage principal, it’s difficult for some homeowners to argue with their lender that a principal reduction is necessary, as there are some banks who simply refuse to help homeowners who are current on their home loans, and even those who have fallen behind on their payments may have limited options.
While there are proposals to help homeowners who are current on their underwater mortgage find more relief from their negative equity, there are still some plans that are in place to assist underwater homeowners, but again, the scope of these options may be limited for some. As an example, in certain states the Hardest Hit Fund may offer a principal reduction on a homeowner’s underwater mortgage, and even the federal Making Home Affordable Program has an extension plan known as the Principal Reduction Alternative that gives servicers the option to decrease a homeowner’s principal when negative equity is an issue.
Banks are usually in a position where investors have a say in whether certain principal reductions will be offered, and obviously, this is a major hurdle which must be overcome since forgiving a mortgage principal particularly for a homeowner who may be current on their payments could lead to a great deal of loss for these investors. Also, some banks argue that there is a moral hazard which is present when homeowners who may have seen a decrease in their property value are given a principal reduction while homeowners who may be in a less severe negative equity situation or saw little property value loss at all are still continuing to meet their original mortgage agreement.
While the issue of principle reduction is one that continues to divide homeowners and banks, there are some programs which are hopefully either still in a position to help homeowners find more affordable payments despite being in a negative equity situation or, once again, proposed legislation may bring about further options as well. While homeowners who can meet their home loan payment despite being in an underwater situation do have a more difficult road to travel, homeowners who are having trouble meeting their mortgage payment as a result of devaluation do still have state-specific options from certain Hardest Hit Programs and plans like the Home Affordable Refinance Program, which may offer homeowners the opportunity to find more affordability on their monthly mortgage payment.