The principal reduction program was introduced several months ago and there had been talk that more lenders would get on board with this program. But to the dismay of many, if either Fannie Mae or Freddie Mac are the investors holding your mortgage, this will not happen, according to an article that appeared in the New York Times.
I am not sure if the reasoning behind their decision makes sense and that is probably because I am out here and not in there. My thinking if the home ends up in either a short sale or forecelosure, in essence the principal is reduced. Once either one of these actions happens, the homes will be sold at market value, which is essentially what the principal reduction program is about.
It would also seem that the expense of either a short sale or foreclosure is far greater than the principal reduction. In either of the above scenarios, taxes are not being paid, homeowners dues where applicable are not being paid. If the home is vacant, then who knows what has been destroyed. The holding costs for the lenders plus any attorney fees are costs that would not be incurred with the principal reduction.
Essentially the mortgage principal reduction program works with homeowners who are current on their mortgage, have good credit, but are upside down on the mortgage, have had some type of hardship and are trying to hang on.
My questions – wouldn’t it be in the best interest of all parties to work with these homeowners? They are in the property, taking care of it, making mortgage payments.
Anyone in this type of situation, should check with their lenders to see if they are willing to participate with the principal reduction-short pay program. The first questions to ask “who is the investor holding my mortgage” – hopefully it is not Freddie or Fannie.