With all the happy talk recently about the nation’s housing recovery, much of eastern Pennsylvania and central and southern New Jersey real estate markets still have a significant amount of homes that are underwater (when the mortgage balance is greater than the value of the home). Many of these properties were purchased or refinanced by homeowners during the housing bubble which collapsed in 2007.

Recent reports continue to suggest that the best solution for all parties (banks, homeowners, investors, states and municipalities) is for the approach of “principal reduction.” By this method, if lenders rewrote the loans to reflect fair market values, then owners would have lower monthly payments which would put more money and tax dollars into local economies. Cities and towns could have more stable property tax revenues and lenders may ultimately benefit by having fewer delinquent loans.

The solution is not so simple because many banks no longer own the loans they made. Many of the underwater home loans have been pooled into private securities, and sold off to investors. The companies who service these securities and loans generally will not reduce the principal because, since they do not own the loan, they do not have the authority to reduce the principal balance. With all the talk over the last 12 to 18 months about settlement agreements between the Justice Department and the big banks, none of these initiatives require the banks or their investors to reset loans as a condition of getting Federal funds. Even the government’s Home Affordable Modification Program (HAMP) has helped barely 25% of the 4 million homeowners it was supposed to reach. Worse still, the Federal Government itself is an obstacle to a lot of the reform measures because the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, will not allow these two mortgage giants to reduce the principal on any of the underwater mortgages they own or guarantee. The new FHFA director, former-Representative Melvin Watt, could change that policy and he could do it without Congressional approval. It remains to be seen if the Administration will embark on principal reduction.

Contact Our Office

We provide a free initial consultation to anyone with concerns about foreclosure or who is involved in foreclosure proceedings. To schedule an appointment, call our foreclosure hotline at 855-289-1660 or contact us online. Evening and weekend meetings can be arranged upon request. We will travel to your home if necessary to meet with you.