Simply put, mortgage principal reduction is the best way to fix a troubled mortgage. It can prevent strategic defaults and foreclosures.
Under the expired HAMP guidelines, investors were offered incentives for principal balance reductions. Currently, you can apply for other mortgage relief assistance programs like “The Hardest Hit Fund”. these programs offer mortgage principal reduction assistance to underwater borrowers.
How Do I Get a Principal Reduction?
The best way to understand your chances for receiving a principal reduction is to look at your situation from your lender’s point of view. Let’s say for example you owe 200K on your mortgage and your house is currently worth 100K. Substantial costs will be incurred if the bank forecloses on the property and resells it. Consequently, your lender would probably recoup somewhere between 50-100K. Alternatively, the bank could reduce the mortgage principal balance. This will increase the chances that the homeowner will continue to make payments and preclude the losses of foreclosure. Given these alternatives, a middle ground can often be negotiated with the lender. You may also find that the current holder of your mortgage note purchased it at a discount. This would make them more willing to negotiate a principal balance reduction.
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If you have remained current on your mortgage payments, the HARP program is one way of reducing your mortgage principal balance.
You may be eligible for Home Affordable Refinance Program (HARP), if you meet all of the following criteria:
- Your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae.
- The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
- Your mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009.
- Your current loan-to-value (LTV) ratio must be greater than 80%.
- You must be current on the mortgage at the time of the refinance, with a good payment history in the past 12 months.
If you have fallen behind on payments, loan modification programs might be the right choice. In addition, the Hardest Hit Fund has funds available for principal reduction.
You ca get a realistic assessment of your chances of a mortgage principal reduction via the loan modification process. So just discuss the details of your situation with an experienced foreclosure defense attorney. No one can promise or guarantee the specific outcome of a mortgage negotiation. However, an experienced foreclosure attorney is in the best position to assess your chances of obtaining a principal reduction.