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Avoid ForeclosureTreasury Department Announces Mortgage Principal Reduction Plan
(3/28/10)

In a move to stem the tide of pending foreclosures, The Treasury Department announces a mortgage principal reduction plan for struggling homeowners whose homes are worth less than the amount of their mortgage. The initiative allows lenders involved in the Home Affordable Modification Program, HAMP, to begin offering principal reductions to a limited number of homeowners facing foreclosure. With new financing to be offered through the Federal Housing Administration, Treasury expects the plan to help millions of homeowners to avoid foreclosure.

While there are currently 10 to 11 million homeowners “underwater” or owing more than their home is worth, the new incentive will not be available to all, including; investors, owners of vacation homes, or those who own luxury homes. Targeted to owners who are at risk of pursuing “strategic default,” those who choose to walk away for economic benefit, Treasury hopes the reduction in principal will cause more of those owners to remain in their homes, and thus bring stability to a housing market that has remained in chaos.

Additionally, the new program will offer mortgage payment assistance for up to six months to those homeowners who have lost their jobs. And, while the potential number of owners who might qualify could be several million, some experts have predicted that the results will be fewer than desired by Treasury. However the full impact of the program cannot be evaluated until all the details are clearly defined.

Under this plan, principal reduction is only to be offered to those making application for a HAMP modification, and only by request. Those who are in process or considering applying for a loan modification should ask if they might also qualify for a refinance and reduction of their loan amount.

 

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