Mortgage Principal Forgiveness Plans For Underwater Homeowners–Options When A Servicer Doesn’t Offer Principal Write-Downs

Many homeowners who are in an underwater mortgage have often looked for ways to get a mortgage principal write-down as some want forgiveness on their home loan principle as a result of the drastic devaluation that has been seen in some areas. When a servicer may not offer a principal write-down, many homeowners have grown frustrated in the past and simply walked away, or others who may be in a position where a write-down could help them avoid long-term financial problems, but again this has been an option that many banks are hesitant to use.

Recently we saw a refinancing opportunities change for current homeowners, in the hopes that there would be more options available when it comes to getting an affordable rate on a home loan, but there are also homeowners who are still calling for principal forgiveness plans and some officials have also proposed that this could do a great deal to alleviate the burden that a homeowner has. In the past we have seen programs such as the FHA short finance initiative potentially help homeowners through a combination of mortgage principal forgiveness and refinancing, but this plan is saw relatively little to no results in terms of helping homeowners on a wide scale.

Many homeowners still hope that principal forgiveness will be considered but there are some limited opportunities that can potentially help homeowners at the present time. Yet, the options available for principal forgiveness plans in these underwater situations will often depend on the mortgage servicer the homeowner is dealing with, the situation they happen to be in in terms of negative equity and affordability, but there are also cases where homeowners may simply not qualify for the forgiveness option if certain conditions are in place.

As an example, the federal Home Affordable Modification Program does offer principle forgiveness on modifications, in some cases, and there are also opportunities from the Principal Reduction Alternative initiative that was set in place as part of the extension package from HAMP that, among other things has brought about HARP, and we have seen some homeowners take advantage of these principal reduction plans as well. However, this does not mean that every mortgage servicer has to participate in these programs as reducing a homeowner’s principal is not a requirement by the federal government in these plans, nor do mortgage servicers have to offer a write-down for homeowners in a negative equity position.

While there are some plans currently available that can offer principal forgiveness for homeowners, more are calling for a solution to what seems to be an inconsistency in this area as, once again, some underwater homeowners are receiving help through principal forgiveness while others may only get a more affordable payment or refinancing options rather than having their principal reduced. Again, arguments have been presented on both sides of this issue, and it’s understandable to see why homeowners who have lost a substantial amount of value in their equity are calling for these forgiveness plans, but at the current time a servicer-direct principle forgiveness option or potential aid from the federal modification program that may offer forgiveness are a few of the options open to underwater homeowners, who continue to ask that more be done in terms of writing down principle debt on homes where the value has fallen substantially.