Some homeowners in an underwater mortgage situation may be looking into principal reduction programs, specifically from initiatives like the Principal Reduction Alternative, which may help certain homeowners find the aid they need when it comes to alleviating themselves of a situation in which they owe a substantial amount more on their home than it’s actually worth. There have been some extreme instances in which homeowners have seen tens of thousands or even hundreds of thousands of dollars disappear from their home value despite the fact that they may still owe a great deal on their home, and it’s common sense that this has caused frustration among many homeowners.
Yet, reports by the Treasury Department that were released here in September, and track information to in July, have indicated that some homeowners are still seeing benefits when it comes to opportunities like the Principal Reduction Alternative, which has been associated with the Home Affordable Modification Program. Homeowners who may qualify for a modification may be reviewed and granted a principal reduction if they are in an underwater mortgage situation, and as we have reported earlier this month, there were increases seen in the number of permanent modifications with the PRA in place and active modifications with a principal reduction option in place as well.
However, some homeowners may be unsure of how much this can help, as the amount of principle that is forgiven could potentially vary for one homeowner to another. Furthermore, not all mortgage servicers may offer this particular type of aid to homeowners, particularly if a homeowner with a negative equity problem is still able to meet their mortgage payment obligation. The good news for some is the Treasury Department reports that the average amount of the principle reduced in these modifications has remained around $67,700, which is about a 30% reduction for homeowners in these programs.
Homeowners may also have the opportunity to participate in principle reduction programs from certain Hardest Hit Fund plans in various states, as this particular program was set to help homeowners in states where problems like negative equity and general housing issues may have been more severe than the national average. Obviously, the issue of negative equity is something that many homeowners still struggle with as some reports have stated around 22% to 25% of homeowners may still have problems related to an underwater home loan, but if homeowners explore these principal reduction plans through either initiatives like HAMP or even incentive programs directly from their servicer, they could be helpful at the present time when it comes to addressing problems for homeowners have seen the equity in their home drop over the past months or years.