Mortgage Modifications For Underwater Homeowners–Can Payment Assistance Offer An Alternative To Negative Equity Refinancing?

For homeowners who are in an underwater home loan situation, getting a traditional mortgage modification or some other form of negative equity with assistance may be more difficult in certain cases, due to the fact that homeowners who owe more on their home than it’s actually worth often have more hurdles to overcome than those who are simply in a position where they have fallen behind on their mortgage payment. Yet, homeowners often ask whether there are payment assistance plans that can offer either an alternative to underwater home loan refinancing or if certain opportunities to avoid foreclosure are simply unavailable.

While the answer may depend on a homeowner’s mortgage servicer, the severity of their negative equity situation, or their financial situation, there have been some solutions offered by various banks when it comes to helping homeowners meet their underwater mortgage payment, even if this does not entail addressing the negative equity on a home. Some banks may be able to offer either assistance from the federal modification program or a private home loan assistance plan, but there are homeowners who have been looking for principal reductions as a result of their negative equity.

Typically, some banks do not offer principal forgiveness options, but there are some who will reward homeowners who can keep their mortgage payment current despite being in negative equity position by reducing a percentage of their mortgage principal. Also, there are programs like the Principal Reduction Alternative initiative which has required banks to review whether a homeowner’s mortgage situation could be made more affordable were a principal reduction to be made available.

Yet, homeowners need to remember that a mortgage modification may not be available from their servicer, as this again is a situation where some banks may address issues like negative equity differently than others, but when it comes to home loan modifications, many will offer either a lower interest rate, term extensions, or a principle payment forbearance for a set period of time, and there are some banks or investors who might not offer this opportunity on homes with negative equity.

However, homeowners should know that when it comes to the guidelines set forth by the Making Home Affordable Program, there are no statements within the traditional Home Affordable Modification initiative that say there are restrictions when it comes to homeowners in a negative equity situation. While most homeowners who are looking for help with fallen value on their home may find more success at the present time in state-specific plans like the Hardest Hit Fund, homeowners who are into negative equity situation and are simply looking for more affordable mortgage payments may be able to find solutions if they contact their servicer or consult representatives like those from the HOPE Hotline, as there are modification plans in place to help in a variety of situations. Yet, it may be the case that some servicers may point homeowners in the direction of programs outside of these traditional modification efforts to help those with negative equity find more affordability on their payments.