A 2012 report by Amherst Securities Group indicated that when principal reductions reduce a mortgage’s balance to near what a home is actually worth, homeowners are far less likely to fall behind on payments in the future and far less likely to lose their homes. In fact, only 12 percent of borrowers who had their principal reduced re-defaulted on their mortgage payments in 2011. This is lower than the 23 percent re-default rate among those who received an interest rate modification or other mortgage modification that did not involve principal reduction
. This is also significantly less than the 30 percent of homeowners who re-defaulted after their payments were temporarily suspended when their loan was put into forbearance.
These numbers show what we already know — principal reduction is the single best way to help people to keep their homes. Only by reducing the principal does the mortgage lender bear some of the losses that you, as a homeowner, suffered due to the collapse of the real estate market. Having the lender share some of that burden only makes sense, since individual homeowners are not the ones who caused the collapse of the real estate market or the decline in property values that has left so many homeowners underwater.
At the Law Offices of Evan M. Rosen, we have successfully helped homeowners throughout Florida to obtain principal reductions. While principal reduction isn’t always possible, in every case we place the needs of our clients at the forefront, providing the best possible legal advice and customer service to create a complete loan resolution program. Our goal is to serve you by helping you to resolve your mortgage problems in the best way possible, and principal reduction is just one avenue we pursue to help you to keep your home or to resolve your mortgage debt once and for all.
You are welcome to read more about principal reduction below or you can contact us now for a FREE CONSULTATION by calling 754-201-3826 or by filling out our online form.
Understanding Principal Reduction
There are a number of programs in place through both the government and private lenders that are intended to help homeowners to reduce their monthly mortgage payments. One of the most well-known is the Home Affordable Modification Program (HAMP), which aims to reduce a borrower’s monthly payment to no more than 31 percent of his or her income.
However, while a system called the “HAMP waterfall” has a number of different steps to reduce a borrower’s payment, including reducing interest rates, extending the repayment period and deferring a portion of the loan balance to be paid as a balloon payment upon the sale or refinance of the home, HAMP does not require principal reduction. In fact, there is currently no government program that requires a lender to reduce principal.
Unlike reducing an interest rate or extending the repayment period, reducing principal actually reduces the balance on a mortgage so that the borrower has less to pay back. For example, if a bank lent $300,000 on a house that is worth $250,000 now, the lender might reduce the actual balance on the mortgage to $250,000 — the current market value of the home.
When this principal reduction occurs, the borrower doesn’t have to pay back that extra $50,000 — it is simply forgiven. Lenders, understandably, may be more reluctant to reduce principal rather than just lower interest rates or extend a repayment period, since the lender is actually going receive less money than it loaned.
Options for Reducing Principal
Although lenders may be more willing to modify a mortgage in other ways, it is possible to have the principal balance reduced on your loan in certain circumstances. The best way to achieve this goal is to have a trusted legal advocate from the Law Offices of Evan M. Rosen help.
An important step in determining if you are eligible for principal reduction is finding out if your debt is backed by Fannie Mae or Freddie Mac, two government agencies that guarantee mortgages. Loan servicers whose loans are “owned” by Fannie or Freddie are currently limited in their ability to forgive loans that are owned by investors. The limitations will make it difficult, if not impossible, for principal reduction to be an option for you if your loan is backed by one of these government-sponsored entities (GSEs). The Law Offices of Evan M. Rosen can, instead, help you to explore other alternatives if you wish to keep your home and are struggling with your mortgage.
If your loan is not backed by Fannie Mae or Freddie Mac, then your attorney can assist you in exploring your options for principal reduction. One choice may involve taking advantage of the Principal Reduction Alternative (PRA) that is part of the Home Affordable Modification Act. The PRA provides incentives to lenders to participate in the program and, as these incentives have now been tripled, there is an expectation that more lenders will participate.
Lenders may also offer their own programs or opportunities for principal to be reduced, and exploring these programs with the help of a foreclosure defense lawyer is a smart choice.
Ultimately, the best way to work towards a principal reduction is by creating leverage. Through aggressive and thorough litigation, our lawyers and staff often uncover evidence of fraud, false documents, “robo-signing,” servicing errors, misapplication of payments, evidentiary violations, discovery violations, illegal collection practices and more. This evidence is then use to shift the bargaining strength. If the fraud is egregious enough, then goal number one is to seek to have the mortgage and debt cancelled, an extremely rare but obtainable goal. Otherwise, goal number two is to seek a principal reduction, also rare but a goal that we have accomplished from some clients.
Getting Legal Help
Principal reduction is the most difficult type of loan modification to obtain, and you may not be successful on your own in negotiating a reduction in your mortgage balance with your lender. Working with an experienced Florida foreclosure defense attorney, however, could give you the best possible chance of coming to an advantageous deal regarding your loan.
At the Law Offices of Evan M. Rosen, we are skilled negotiators, knowledgeable about Florida foreclosure and mortgage reduction laws, and strong advocates for our clients. We will take the time to review your situation, discuss your goals and your needs, and come up with a plan of action to help you to get your principal on your loan modified or otherwise reduced to assist you in resolving your mortgage issues. Contact us today at 754-400-5150 or through our online form to schedule a FREE CONSULTATION to learn more.
Throughout the United States, millions of Americans have faced financial bumps in the road because of falling housing prices and unsustainable mortgage payments. These homeowners deserve to get help in getting their finances and dreams of homeownership back on track. Let the Law Offices of Evan M. Rosen be your guide to working through the mortgage mess and to increase the odds of coming out with your dignity, your finances and your home intact!