Predictions for the housing market in terms of home prices remains quite grim as there are some officials and organizations that believe prices could not only dip further to the end of 2011 but there may be some decreases in the early part of 2012 as well, which may leave some homeowners in a situation where they have lost even more value on their home. In some areas of the nation there are homeowners who may be seeing negative equity on as many as 22% to 25% of the homes, and our national average has also been reportedly around these levels as well. For this reason, homeowners who are attempting to ride out this decrease in home prices and hope to gain affordability and value in their home in the future have been looking for ways to either get more affordable payments on their home or, in situations where payment is not the problem, homeowners are still pressing for principle reductions or forgiveness plans as well.
Over the past months we have seen some opportunities that have arisen for homeowners to get a principal reduction but some of these programs have fallen flat, while others do not address the needs of homeowners in such a way that these individuals feel will be helpful. Plans like the FHA short refinance program were hoped to offer a solution to the negative equity problem as homeowners would be given a principal reduction and the option to refinance for more affordable rate, but this plan has been deemed by many to be a failure as only a fraction of the homeowners who are currently struggling with negative equity have seen any benefits from this program.
While there are reports that changes are forthcoming in certain programs like the Home Affordable Refinance Program, some homeowners are seeing modification plans bring principal reductions in some cases, as there are federal principal reduction initiatives in place that some services are using. However, the severity of the drop in equity that homeowners have seen has not necessarily been comparable with the amount of mortgage principle that homeowner has been forgiven, as there are some who want their principal to be lowered to their home’s current market value.
Obviously, this has not been an option that servicers have offered, but some may be allowing homeowners to participate in a modification program that may offer, on average, a 30% reduction in their principle, which is obviously going to be beneficial for some homeowners who have seen a great deal of loss. While there are hopefully programs on the horizon or changes that will address the continued struggles that underwater homeowners have faced, many banks are working to stop strategic defaults, but there is also the issue of homeowners being in a position where they can pay their mortgage payment but simply want a reduced principal because there are some who have seen substantial drops in their home’s value but still owe quite a bit on their home loan.