Principal reduction possible on underwater loans or is this a myth?

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User question: Is principal reduction possible on underwater loans or is this a myth? My house is $90k upside down on $179k note refi. Is unattractive at best. I meet all qualification of HARP 2.0. If principal cannot be lowered who should I contact about foreclosure? Lawyer or...?

Answer from blueroof.com : There is no easy answer to your question. 

Yes principal reductions do happen. It is not very common, but I know a number that have had reductions done.  Also, I have seen before on some of the principal reductions that there were stipulations put in the modification agreement that the owners were not allowed to sell the home for a period of time.  I don't remember the exact length of time they set but it is a stipulation. 

What the banks don't want is to reduce the principal and then values go up and now you have equity in the property and sell it for a profit when really that should be there money.  So banks are VERY hesitant to do those reductions. 

Also the reductions I have seen have been given ONLY when a rate and term modification fail to meet the guidelines based on income and so forth.  So it really is on a case-by-case situation that they are offered. 

Nationally, modifications have a very high rate of failure and principal reductions are such a small percentage of modifications that I would not plan on being offered a reduction.  It's not impossible but it is highly unlikely.  There are other alternatives to avoid foreclosure and if you would like further information on those please let us know and we will help guide you to the best route for you. 

Thanks and we wish you luck in your situation.

*Nothing here is considered to be legal or tax advice. Any and all questions regarding tax or legal issues need to be directed to an appropriate and licensed professional.

Joe Duffin
Broker for Blue Roof Realty

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