Most American homeowners are underwater with their homes. That is, they are in a negative equity position and owe more on their home than it’s worth. If this is the case with you, until recently you have had limited options. Loan Modifications typically will NOT reduce the loan balance. The best you could hope for would be a rate reduction. In the past, lenders have always recommended doing a short sale. The problem is, if you want to keep your home, a short sale will do you no good because someone else is going to get a great deal on the purchase of YOUR home!
If you want to keep your home but you are in a negative equity situation, there is a relatively new program that might be able to help. It’s called a Loan Reduction or sometimes, a Principal Balance Reduction.
Basically, a group of private investors will purchase your note form your lender and then refinance it back to you at 90% of the home’s current market value. This is an amazing opportunity for homeowners who wish to keep their homes to reduce their loan balances and monthly mortgage payments.
A Loan Reduction is very much a win-win program. The investors make money by buying the note at a discount and then refinancing it back to the homeowner at 90% of the home’s appraised value today. The homeowner gets a lower loan amount and a lower payment.
Lenders agree to sell the notes at a discount for different reasons and every case is slightly different. Maybe the homeowner is behind on payments and the lender sees this as a viable alternative to foreclosure. Maybe the lender is afraid that it won’t take the homeowner long to realize that they are grossly overpaying for the home. There is a fear factor on the part of the lender that the homeowner might find another, similar home and then abandon the property.
There is no minimum credit requirement so if someone has bad credit, they can still qualify for the program.
Notes have been bought and sold ever since lending began and this is really nothing new. The concept of purchasing a note at a discount and then offering the homeowner a reduced loan IS relatively new and is starting to gain popularity.
If you are up side down in your home and you owe more than it’s worth, consider looking into a Loan Reduction Program. It’s possible that the program will only be around for another 2 years or so.